<![CDATA[Dividend Strategists]]>https://www.thestreet.com/dividendstrategistshttps://www.thestreet.com/dividendstrategists/site/images/apple-touch-icon.pngDividend Strategistshttps://www.thestreet.com/dividendstrategistsTempestFri, 02 Dec 2022 09:17:54 GMTFri, 02 Dec 2022 09:17:54 GMT<![CDATA[Walgreens: The Dividend Aristocrat With A 5% Yield That's Come Roaring Back To Life]]>https://www.thestreet.com/dividendstrategists/stock-analysis/walgreens-dividend-aristocrat-with-5-yield-come-roaring-back-to-lifehttps://www.thestreet.com/dividendstrategists/stock-analysis/walgreens-dividend-aristocrat-with-5-yield-come-roaring-back-to-lifeWed, 16 Nov 2022 16:23:39 GMTIncome seekers will find this dividend growth stock with a high yield and great value an attractive opportunity.

Walgreens Boots Alliance, Inc. is an integrated healthcare, pharmacy, and retailer with operations in the United States (U.S.), the U.K., Germany, and other countries. Three divisions comprise its business: U.S. Retail Pharmacy, Overseas, and U.S. Healthcare. Additionally, it offers services for health and well-being, specialty pharmacies, and home delivery.

With 47 years of consistent dividend increases, WBA has been paying dividends to shareholders for a very, very long time. It is a dividend aristocrat and is nearly a dividend king. The corporation has a long streak of paying dividends, yet its distributions have been highly consistent despite that.

Since 2012, the payout has increased from $0.90 per year to $1.92 per year. This translates to a compound annual growth rate (CAGR) of almost 7.9% annually over that period. We believe this can give investors a decent extra source of income for their portfolios because the dividend growth has been relatively consistent.

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Dividend Analysis of Walgreens Boots Alliance

Walgreens Boots Alliance Inc. has given dividends to its stockholders every quarter since March 12, 1973. When contrasted to the retail-drug industry median, Walgreens Boots Alliance Inc.'s relative dividend yield as of November 5, 2022, was 5.3%, which is an excellent rate. The dividend yield for Walgreens Boots Alliance Inc. was 4.2% in 2016.

Walgreens Boots Alliance Inc. has distributed quarterly dividends of between $0.03 and $0.50 per share since March 12, 1973. The dividend yield for Walgreens Boots Alliance Inc. has been 3.1% annually on average for the previous five years.

Dividend Yield

The stock's current dividend yield is hovering around 5.2%, with Walgreen's most recent dividend increase being a modest 2.1%. Walgreens is now one of the Dividend Aristocrats Index's constituents with the highest yields as a result. It's a unique opportunity to find a good company that offers a high dividend yield.

The share payout ratio should be close to 35%, even if we predict more or less consistent EPS this year. Consequently, the generous dividend yield is relatively well covered. So, it's not unlikely that Walgreens' dividend growth rate will speed up at some point in the future.

As a result of the stock's continued slide, Walgreens is selling at close to 10x its anticipated earnings, which is close to the low end of the scale of its historical normal. From a different angle, the stock is trading at a P/B multiple of about 1.4, the lowest P/B multiple in Walgreens' history. We think that this multiple is very attractive, and when combined with the 5.2% yield, it should give investors a large amount of safety.

Dividend History

Walgreens (WBA) Dividend History

A $0.48 dividend will be paid on December 12 by Walgreens Boots Alliance, Inc. Accordingly, the annual dividend represents 5.2% of the stock price at the time of payment, which is more than the industry standard. In 46 years, Walgreens has consistently increased its dividend. The company's impressive record of dividend increases makes Walgreens a Dividend Aristocrat.

The business has a long history of paying dividends consistently with slight variation. In 2012, $0.90 per year had been paid out over the previous ten years, and $1.92 was paid out over the latest financial year. This translates to a growth in distributions of 7.9% annually over that time.

We believe this is an appealing combination since it gives shareholder returns a healthy boost. At the same time, dividends have increased at a fair rate over this time without experiencing any significant reductions in payment over time.

Walgreens (WBA) Dividend Analysis

Dividend Sustainability

A high yield for a short period of time won't matter all that much if the dividends aren't stable. However, before this disclosure, Walgreens Boots Alliance was distributing more than 75% of its free cash flows to shareholders and could comfortably sustain its dividend with earnings. But growth in the future could be limited if more than 75% of free cash flow is given to shareholders.

Over the coming year, EPS is predicted to decline by 14.9%. We project that the payout ratio for the dividend could reach 47% if it keeps going in the current direction; this level is sustainable for the company to maintain going forward.

The company's stock has decreased by more than 17% this year. Investors are worried that inflation would reduce the company's sales volumes and that fewer customers would visit its storefronts for COVID-19 vaccinations, which would result in a reduction in sales, which makes sense. We think Walgreens' value would stay the same during a recession because healthcare spending is usually pretty stable, the company's operations go beyond its retail stores, and the company's finances look good.

Cash Flow Analysis of Walgreens Boots Alliance (WBA)

Walgreens (WBA) Cash Flow Analysis

Walgreens Boots Alliance reported a free cash flow of over $2.7 billion in the recently completed twelve months, compared to over $4.4 billion in the previous year. The company appears to be in excellent shape, which won't change soon.

WBA just increased its dividend by 1/4 of $0.01, but the company bought back $4 billion worth of shares over the previous two quarters. The total amount of dividends paid has increased by 50% of free cash flow. This number is often closer to 33–38% for organizations in the normal stages of growth.

As was previously mentioned, Walgreens Boots Alliance pays out more than 75% of its free cash flow to investors and can comfortably cover its dividend with earnings. The company is not using its cash to expand the business since it returns a sizable portion to shareholders.

Debts Analysis for Walgreens Boots Alliance (WBA)

Walgreens (WBA) Debt Analysis

With creative yet responsible use of debt, Walgreens Boots Alliance has a debt-to-EBITDA ratio of 1.9. In keeping with that tendency, its trailing twelve-month EBIT was 7.5 times its interest expenses. Sadly, Walgreens Boots Alliance's EBIT declined by 19% over the past four quarters.

If that kind of decline is not stopped, controlling its debt will be more complex than charging a premium for ice cream with a broccoli flavor. The balance sheet undoubtedly provides the most helpful information about debt. But more than anything else, future earnings will determine Walgreens Boots Alliance's capacity to preserve a sound balance sheet moving forward.

The ratio of WBA's net debt to equity (30.2%) is seen as fair. Over the last five years, WBA has decreased its debt-to-equity ratio from 45.8% to 38.4%. Operating cash flow (33.4%) adequately covers WBA's debt. EBIT more than covers WBA's interest payment on its debt (7.7x coverage).

Walgreens (WBA) Balance Sheet Analysis

Should You Invest in Walgreens Boots Alliance Considering Its Outstanding Dividend Payouts?

The stock price of Walgreens has substantially underperformed in recent years, probably for a good reason. But we think there is a substantial investment case because the company is making record profits, growth projections are in the single-digit range, the dividend yield is high, and the price multiple is attractive.

As income-focused investors take advantage of Walgreens' high dividend yield and steady history of dividend growth, the company should make up some of the ground it lost.

Walgreens' price decrease has resulted in a stock with a price-to-earnings (P/E) ratio of less than six, which is more than 28% lower than the average P/E of an S&P 500 business. One of the earliest companies to recover from the present market crisis is probably a strong one with a pretty high dividend yield. People need security, and Walgreens gives them both while rewarding long-term investors with a respectable income.

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<![CDATA[3 Debt-Free Dividend Stocks]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/3-debt-free-dividend-stockshttps://www.thestreet.com/dividendstrategists/dividend-ideas/3-debt-free-dividend-stocksWed, 09 Nov 2022 19:39:24 GMTThere are a few companies with no long-term debt on their balance sheet and are in a very comfortable position to survive and thrive.

The FED made it clear that inflation is the number one enemy. To kill it, it will keep increasing interest rates until it achieves its goal. With the highest interest rate levels since early 2000, many companies are in trouble.

Federal Funds Rate

However, there are a few companies with no long-term debt on their balance sheet. Those companies are currently in a very comfortable position to survive and thrive. Here are my favorite three “debt free dividend stocks”.

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Gentex (GNTX)

Gentex Corporation is a designer, developer, manufacturer, marketer, and supplier of digital vision, connected car, dimmable glass, and fire protection products. The Company provides automatic-dimming and non-automatic-dimming rearview mirrors and electronics for the automotive industry; dimmable aircraft windows for the aviation industry; and commercial smoke alarms and signaling devices for the fire protection industry.

Gentex Long-Term Debt

Investment Thesis

Gentex is the industry leader and its products are on their way to becoming industry standards. GNTX also possesses a stellar balance sheet with virtually no debt and many of patents. It can weather any economic storm and could be an interesting candidate for a merger. GNTX also benefits from being the first to offer its top-of-the-line products, leading to higher margins for early adoption. We appreciate the company’s effort to diversify its business model and not remain a one-hit-wonder. The company is expanding its product offering to include toll modules, airplane windows, and, in the long-term, healthcare applications such as lighting for operating rooms and iris identification & smoking detection for the interior of autonomous vehicle fleets. GNTX is likely to outperform auto supplier peers due to its industry-leading margins, share repurchases, and strong balance sheet ($280M of net cash at the end of Q2). GNTX is a lower beta stock within its industry.

Potential Risks

Magna Mirrors is GNTX’s largest competitor and has more resources than GNTX. If Magna decides to compete with a similar technology, it could outperform GNTX. In addition, GNTX doesn’t operate in a vast economic moat and has limited pricing negotiation power with automakers. The automotive parts industry is very cyclical and new technology (for example, if cameras were to replace mirrors) could impact demand. Production should remain depressed due to semiconductor shortages, and although there may be other upcoming headwinds, we expect the semiconductor shortage to improve in late 2022. GNTX’s hefty R&D budget enables it to develop new technologies, allowing it to remain competitive.

Dividend Growth Perspective

Gentex Dividend Analysis

GNTX has increased its payouts each year since 2011 but did not make an increase in 2021. We were also disappointed by the 2019 (+5%) and 2020 (+4.5%) increases, but we should expect steady growth in the next few years. Current payout and cash payout ratios allow room for future increases. Gentex has ample amounts of cash ($280M as Q2 2022) and virtually no debt. We would definitely like to see a return to the dividend growth policy in 2022, but this isn’t likely to happen until 2023. Management will also continue its share buyback program. Don’t mind the company’s DDM valuation; low yielding stocks must exhibit double-digit growth to generate any value using this model.

LeMaitre Vascular (LMAT)

LeMaitre Vascular, Inc. is a provider of medical devices and human tissue cryopreservation services, which are used in the treatment of peripheral vascular disease, end-stage renal disease and to a lesser extent cardiovascular disease. The Company develops, manufactures and markets vascular devices to address the needs of vascular surgeons, and to a lesser degree, other specialties, such as cardiac surgeons, general surgeons and neurosurgeons.

LeMaitre Long-Term Debt

Investment Thesis

In looking more closely at LeMaitre Vascular, the first thing that comes to mind is growth; The company exhibits strong revenue growth as it acquired 24 businesses over the past 23 years. LMAT also counts on a solid salesforce and engineering department to sell and develop new products. The company currently offers over a dozen products being used in surgeries on veins and arteries outside of the heart. The pandemic caused the slowing of this growth vector, but surgeries and other procedures are picking back up with some signs of improvement in 2022, and a solid outlook for 2023.

Potential Risks

In dealing with small cap companies, one can expect to see shares surge or plummet on any given day. While LMAT has had a successful track record, keep in mind that the stock dropped by more than 40% in the 2018 market correction. We have begun to see a small margin reduction trend over the past couple of years (from their peak in 2017). Since margins may soon become a concern, we look forward to seeing how new acquisitions play out and affect LMAT’s business model going forward. It is also possible that the company may end up paying too much for a new business in a future acquisition.

Dividend Growth Perspective

LeMaitre Dividend Analysis

This stock is another case of a strong double-digit dividend grower with a very low yield. While LMAT has aggressively increased its dividend payment over the last few years, the stock price has grown at an even faster pace. The company has consistently increased its dividend yearly since 2012. Considering both payout and cash payout ratios, shareholders can expect many more years of double-digit increases. Most importantly, the company has almost no debt. This gives management plenty of room to grow by acquisition and to reward shareholders at the same time.

Garmin (GRMN)

The Company and its subsidiaries offer global positioning system (GPS) navigation and wireless devices and applications. The Company operates through five segments: fitness, outdoor, aviation, marine and auto. It offers a range of auto navigation products, as well as a range of products and applications designed for the mobile GPS market.

Garmin Long-Term Debt

Investment Thesis

After navigating an industry crisis, GRMN has proven its ability to shift its business model away from the automotive industry. Although the traditional use of auto GPS is declining thanks to smartphones, GRMN has developed new applications for its technology in the fitness, outdoor, marine, and aviation industries. GRMN is gaining traction particularly in the aviation market. With the exception of the Fitness segment, underlying demand for its products appears to be healthy, and only constrained by supply chain issues. Garmin’s order backlog has increased in Aviation and Marine, while Auto has been affected by reduced OEM orders. However, we fear that technology may evolve again and that most of GRMN’s devices could become obsolete.

Potential Risks

In the late 2000’s, GPS technology was revolutionary, and Garmin surfed on its first-mover advantage and built a strong business. Today, GPS applications are common, and most smartphones and smartwatches can easily compete with what Garmin offers. GRMN is now facing fierce competition from other tech giants with larger budgets. We are concerned with how GRMN will be able to survive competition from Apple, Google, and the like and it seems that the company could face the same fate that it did with its automotive GPS products. Finally, currency exchange rates could be less favorable than we expect. We are curious to see how the company can reinvent itself for a third time.

Dividend Growth Perspective

Garmin Dividend Analysis

After a short break between 2015 and 2017, GRMN rewarded its shareholders with dividend increases in 2018, 2019, 2020, and 2021. The 2021 increase was a strong 9%. Recently, GRMN also declared a 2022 dividend increase from $0.67 to $0.73, representing another 9%. Considering the company has a strong balance sheet and is currently exhibiting strong revenue growth coming from its Fitness and Outdoor segments, we believe shareholders can expect mid- to single-digit dividend growth going forward. In this economic environment, Garmin’s diversified portfolio could bring less volatility.

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<![CDATA[This Dividend Aristocrat With A 7% Yield Is A Real Buy Low Opportunity]]>https://www.thestreet.com/dividendstrategists/stock-analysis/dividend-aristocrat-with-7-yield-real-buy-low-opportunityhttps://www.thestreet.com/dividendstrategists/stock-analysis/dividend-aristocrat-with-7-yield-real-buy-low-opportunityTue, 08 Nov 2022 16:53:06 GMTVF Corporation, which has increased its dividend annually for nearly 50 years, is on sale.

VF Corporation (VFC) is down 60% year-to-date thanks to a confluence of factors - global growth challenges, a tough retail environment and consumer discretionary stocks, in general, being out of favor.

That's created a potential bargain, however, for dividend income investors. The yield is all the way up to 7% and the company has raised its dividend annually for nearly a half century, putting it in some truly rarified air among dividend growth stocks.

Is the dividend sustainable though? Is the company positioned for a turnaround?

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VF Corporation (VFC) Overview

Together with its subsidiaries, V.F. Corporation creates, acquires, markets, and distributes branded lifestyle clothing, footwear, and related goods for men, women, and kids throughout the Americas, Europe, and the Asia-Pacific. Outdoors, Active, and Work are its three functional segments.

V.F. has a remarkable 49-year streak of dividend increases, nearly twice as long as what is necessary to become a Dividend Aristocrat. The company has a long history of raising dividends but has also been an outstanding dividend growth stock. It has increased by an average of slightly over 10% over the last ten years, giving investors nearly 50 years of continuous growth and double-digit yearly gains.

Dividend Analysis of VF Corporation (VFC)

V.F. Corporation (VFC) is a Dividend Aristocrat, significantly increasing its dividend for 49 consecutive years. V.F. Corp. boosts its dividend every year, including in 2020, a challenging year for the corporation and the economy owing to the coronavirus outbreak.

However, V.F. Corp. has a firm that can continue to be highly profitable even when the economy is experiencing a slump. This lets it keep raising its dividends yearly even if business conditions worsen.

The current dividend yield on V.F. Corp. shares is 7.2%. The payout ratio is 63% based on the new yearly dividend of $2.00. The year 2021 was considerably better for V.F. Corp., which continued to be a leader in the sector with well-known brands. In 2022 and 2023, as the global economy keeps improving, V.F. Corp. should resume growing.

Dividend Yield

VF Corporation (VFC) Dividend

With a $2.04 yearly dividend that brings the dividend yield to about 7.2%, the corporation is currently halfway to achieving its aim of a 50% dividend distribution goal. Due to stock buybacks in the past, the net payout yield has gone up to 8.2%. This gives shareholders more than just the dividend yield.

With its recent dividend rise, VF Corp has boosted its dividend for the 50th time in a row, crowning it America's latest Dividend King. VF has raised its dividend at a healthy annualized pace of 11% over the past ten years. Even though dividend increases are happening much more slowly right now because of how bad the economy is, they are still happening.

V.F. Corp has demonstrated that it is remarkably resilient to weathering economic swings without harming its bottom line, as seen by its Dividend Aristocrat status. The corporation has a significant edge in this situation thanks to its diverse portfolio of brands since it can adapt to shifting consumer preferences with various styles, patterns, and price points.

Also worth mentioning is the dividend's strong foundation. There is a massive gap between earnings and the present payout rate, with the yearly dividend at $2.04 per share.

Given its current operational conditions and scale, VFC offers one of the best dividends currently on the market. The management does not have any plans to lower the current dividend yield further unless stock prices skyrocket, which have hit rock bottom in the past two years.

Dividend History

VF Corporation (VFC) Dividend History

In order to provide the most exactly relevant comparison of VFC's historical dividends, the above-described dividend history graphic for VFC has been given after accounting for any recorded stock split occurrences. When historical dividends are plotted on a graph, they can show long-term fluctuations and growth in the VFC dividend history.

Examining VF Corp's dividend history is a solid starting point for determining dividends' sustainability. But studying dividends involves more than just examining a company's dividend yield and growth. For investment decisions, other financial variables are also crucial.

V.F. Corp. has grown its dividend every year since 1974 for a total of 49 years. The December dividend will be increased if history holds. The company is also in the S&P 500 index, which solidifies its place as one of the well-known Dividend Aristocrats.

It's unlikely that clothing or fashion, in general, will go out of style anytime soon. Due to the push for leading healthy lifestyles, the market for outdoor apparel and footwear has expanded. V.F. Corporation appears well-suited to weather the present economic environment, despite the fact that the clothing and footwear industry can be unpredictable.

Here's a graph showing the comparison between dividend growth, dividend yield, and the earnings per share of VFC over the years.

VF Corporation (VFC) Dividend History

Dividend Sustainability

Even if the dividend yield is crucial for income investors, it's also essential to take any significant changes in share price into account because they typically surpass any dividend income gains. The stock price of V.F. has dropped 37% in the past three months, which is unsuitable for investors and can account for the high rise in dividend yield. But it's estimated to bounce back soon, which probably gives investors a good chance to buy the stock.

A high dividend yield for a short period of time is meaningless if it cannot be maintained. Prior to this disclosure, V.F. was losing money and paying out 183% of its earnings, with no free cash flow being produced. It would be impossible to keep paying out dividends that are so high compared to earnings and still have no free cash flow.

EPS should increase significantly next year, according to analysts. Suppose the dividend continues on its current path. In that case, analysts estimate the payout ratio would be 57%, which would put us at ease about the dividend's long-term viability, despite the current high levels.

The company has a track record of consistently paying dividends with minimal variation. The dividend has increased from a 2012 total yearly payment of $0.72 to the latest total annual payment of $2.00. This translates to a growth in distributions of 11% annually over that time. A trait that an income stock should have is steadily increasing dividends over time.

Cash Flow Analysis of VF Corporation (VFC)

VF Corporation (VFC) Cash Flow Analysis

VF Corp.'s financial stability is of the utmost importance for both external investors and internal stakeholders. The cornerstones of VF Corp's success are creating enough cash flow to pay bills, pay off debt, and maintain a steady profit year after year, together with efficiency and cost control.

Understanding how VF Corp makes and spends money over a specific time period requires understanding its cash flow. It can also assist you in determining how much money you have on hand and where your money is going at any given time.

Given the company's present industry classification, its debt-to-equity (D/E) ratio of 1.88 and the debt of 6.3 B are acceptable. The current ratio for VF Corp. is 1.3, which indicates that it might not be able to meet its financial obligations when the payments are due. Debt can help VF Corp until it is unable to repay it, either with additional funds or with free cash flows.

In this instance, debt can be a terrific and far more effective tool for VF Corp to engage in development at high return rates. Debt should always be taken into account alongside cash and equity when analyzing VF Corp's usage of debt.

Debt Analysis for VF Corporation (VFC)

VF Corporation (VFC) Debt Analysis

It's crucial to comprehend the foundational ideas behind developing strong financial models for VF Corp. The appropriate projection of a stock's fair market value is made possible by taking into account its historical fundamentals, such as total debt. Because the critical accounts VF Corp uses in its financial reporting are linked and depend on each other, it is important to look for any possible connections between related accounts.

The net debt-to-equity ratio of VFC (178.2%) is considered excessive. Over the last five years, VFC's debt-to-equity ratio has risen from 110.9% to 196.1%. Operating cash flow only covers 2% of VFC's debt. The debt interest payments for VFC are adequately covered by EBIT (11.3x coverage), which seems reasonable compared to other stocks similar to VF Corp.

Most VF Corp stock investors today examine various VF Corp growth ratios in addition to static indicators when looking for future investment possibilities. When fundamental ratios consistently go up or down, it's often a sign that there might be a profitable pattern.

VF Corporation (VFC) Debt & Equity

Should You Invest in VF Corporation Considering Its Outstanding Dividend Payouts?

Through dispositions and additions, VF has developed a portfolio of powerful brands across several garment categories. We think VF will expand faster than most rivals in the long run and preserve its competitive edge despite short-term disruption from the COVID-19 situation and the economic slowdown in China.

VFC, with a stock price of 28.25 USD as of November 3, 2022, has a market value of $12.3 billion and trades at a P/E ratio of 10.43, less than its rivals. It is reasonable to state that the stock is most likely undervalued compared to its 52-week high of $78.91.

VFC indicates how to profit from the market turbulence that drives some investors to flee. Today, VFC isn't just one of the finest high-yield aristocrats you can trust to invest in for the long run; it's one of the best stocks you can purchase, period. A company that can assist you in making your long-term fortune on Wall Street and possibly retiring in safety and splendor.

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<![CDATA[7 Dividend Growth Stocks For November 2022]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-for-november-2022https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-for-november-2022Mon, 07 Nov 2022 15:07:17 GMTThese high-quality dividend growth stocks are ranked in the top 50 of JUST Capital's Overall Rankings of America's largest publicly traded companies.

After taking three months off, I'm resuming my monthly series, 7 Dividend Growth Stocks.

In this series, I present seven dividend growth stocks from Dividend Radar for further analysis and possible investment. Dividend Radar is a weekly automatically generated spreadsheet of dividend growth [DG] stocks with dividend increase streaks of five or more years.

Every month, I use different screens to find candidates. Using different screens highlights different aspects of dividend growth investing, such as value, yield, or growth. This month, I decided to use the top-ranked stocks in JUST Capital's 2022 Rankings of America's largest publicly traded companies as my primary screen.

In case you missed previous articles in this series, here are links to a few of them:

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About JUST Capital

JUST Capital was co-founded in 2013 by a group of concerned people from the world of business, finance, and civil society – including Paul Tudor Jones II, Deepak Chopra, Rinaldo Brutoco, Arianna Huffington, Paul Scialla, and Alan Fleischmann. By establishing the organization as a not-for-profit 501(c)(3) registered charity, the founders ensured that JUST Capital would be exclusively geared towards achieving its mission. JUST Capital is funded by donations, grants, and earnings from various products and partnerships.

Here is JUST Capital’s mission statement:

“The mission of JUST Capital is to build an economy that works for all Americans by helping companies improve how they serve all their stakeholders – workers, customers, communities, the environment, and shareholders. We believe that business and markets can and must be a greater force for good, and that by shifting the resources of the $19 trillion private sector, we can address systemic issues at scale, including income inequality and lack of opportunity. Guided by the priorities of the public, our research, rankings, indexes, and data-driven tools help measure and improve corporate performance in the stakeholder economy. is "to build an economy that works for all Americans by helping companies improve how they serve all their stakeholders – workers, customers, communities, the environment, and shareholders."

JUST Capital surveys Americans annually to identify the issues that matter most to them in defining just business behavior. It then establishes representative metrics and measures the largest publicly traded U.S. companies to reach an overall ranking for each company.

Source: JUST Capital’s Rankings Methodology

In the 2021 survey, the public identified 20 issues essential to just businesses, color-coded below by the stakeholder it most impacts:

Source: JUST Capital's 2021 Classification of Issues with relative Ranking Weights

The percentages reflect the probability that an individual would choose that Issue as most important to defining a just company, based on a representative sample of 3,000 Americans. The percentages are considered weights in that they represent the relative importance of one Issue versus another.

To produce the 2022 Rankings, JUST Capital tracked, analyzed, and ranked 954 companies across five stakeholder groups, 20 issues, 66 metrics, and 241 data points (as determined in the 2021 survey).

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Screening and Ranking

For this month’s article, I considered the top 50 companies in JUST Capital's 2022 Rankings that are also members of Dividend Radar (The edition dated November 4, 2022 contains 725 stocks).

Only 27 of the top 50 companies in JUST Capital’s 2022 Rankings are also Dividend Radar stocks. I ranked these using DVK Quality Snapshots and my ranking system.

Here are the top-ranked DG stocks for November:

I own all of these stocks in my DivGro portfolio.

Key Metrics and Fair Value Estimates

Below, I provide a table with key metrics of interest to DG investors:

  • Yrs: years of consecutive dividend increases
  • Adj Qual: DVK Quality Snapshots adjusted quality score
  • Fwd Yield: forward dividend yield for a recent share Price
  • 5-Avg Yield: 5-year average dividend yield
  • 5-DGR: 5-year compound annual growth rate of the dividend
  • 5-YOC: the projected yield on cost after five years of investment
  • C#: Chowder Number, a popular metric for screening dividend growth stocks
  • 5-TTR: 5-year compound trailing total returns (as of the latest quarter)
  • VL Safety Rank: Value Line's Safety Rank
  • VL Fin Stren: Value Line's Financial Strength ratings
  • MS Econ Moat: Morningstar's Economic Moat
  • S&P Cred Rating: S&P Global's Credit Ratings
  • SSD Divi Safety: Simply Safe Dividends' Dividend Safety Scores
  • Buy Below: my risk-adjusted buy below price (see below)
  • –Disc +Prem: discount or premium of the recent share Price to my Buy Below price
  • Price: recent share price

The Fwd Yield column is colored green if Fwd Yield ≥ 5-Avg Yield.

Key metrics of the 7 Top-Ranked Dividend Growth Stocks this month (includes data sourced from Dividend Radar).

I use a survey approach to estimate fair value [FV], collecting fair value estimates and price targets from several online sources such as Morningstar, Finbox, and Portfolio Insight. Additionally, I estimate fair value using each stock's five-year average dividend yield. With up to 11 estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my FV estimate.

My risk-adjusted Buy Below prices allow premium valuations for the highest-quality stocks but require discounted valuations for lower-quality stocks:

Table indicating how I determine risk-adjusted Buy Below prices

My Buy Below prices recognize that the highest-quality stocks rarely trade at discounted valuations. As a dividend growth investor with a long-term investment horizon, I'm more interested in owning quality stocks than getting a bargain on lower-quality stocks.

Let's now look at each stock in turn. All data and charts are courtesy of Portfolio-Insight.com.

Johnson & Johnson (JNJ) – Health Care

Founded in 1886 and based in New Brunswick, New Jersey, JNJ has grown into one of the largest companies in the world. The company is a leader in the pharmaceutical, medical device, and consumer products industries. JNJ distributes its products to the general public, retail outlets and distributors, wholesalers, hospitals, and health care professionals.

JNJ valuation and key metrics, as well as a performance comparison with SPY over the past decade

JNJ is rated Exceptional (quality score: 25) and is only one of two companies (along with MSFT) that have a AAA credit rating from S&P. Portfolio Insight classifies JNJ as a slow-growth stock with a 1-year upside of 5% and a 1-year target price of $180.

JNJ non-GAAP EPS and dividends paid (TTM), with stock price overlay

The company’s non-GAAP payout ratio of 46% is low for most companies and I expect the company to continue increasing its dividend by about 5% annually.

Microsoft – Information Technology

Founded in 1975 and based in Redmond, Washington, MSFT is a technology company with worldwide operations. The company’s products include operating systems, cross-device productivity applications, server applications, productivity and business solutions applications, software development tools, video games, and online advertising. MSFT also designs, manufactures, and sells several hardware devices.

MSFT valuation and key metrics, as well as a performance comparison with SPY over the past decade

MSFT is rated Exceptional (quality score: 25) and is only one of two companies (along with JNJ) that have a AAA credit rating from S&P. Portfolio Insight classifies JNJ as a high-growth stock with a 1-year upside of 36% and a 1-year target price of $301.

MSFT non-GAAP EPS and dividends paid (TTM), with stock price overlay

The company’s non-GAAP payout ratio of 30% is very low for most companies and I think dividend increases of around 10% annually are likely and achievable.

Visa (V) – Information Technology

Headquartered in San Francisco, California, V operates as a payments technology company worldwide. The company facilitates commerce through the transfer of value and information among consumers, merchants, financial institutions, businesses, strategic partners, and government entities. V provides its services under the Visa, Visa Electron, Interlink, V PAY, and PLUS brands.

V valuation and key metrics, as well as a performance comparison with SPY over the past decade

V is rated Exceptional (quality score: 25) and is one of two stocks in this month’s list with a favorable Chowder Number. Portfolio Insight classifies V as a high-growth stock with a 1-year upside of 58% and a 1-year target price of $310.

V non-GAAP EPS and dividends paid (TTM), with stock price overlay

V has a very low non-GAAP payout ratio of 21%, so the company has ample room to continue paying and raising its dividend. I think annual increases of at least 10% is likely.

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Accenture plc (ACN) – Information Technology

Founded in 1989 and is based in Dublin, Ireland, ACN provides management and technology consulting services to clients in various industries and geographic regions, including North America, Europe, and Growth Markets. ACN’s operating segments are Communications, Media & Technology; Financial Services; Health and Public Service; Products; and Resources.

ACN valuation and key metrics and a performance comparison with SPY over the past decade

ACN is rated Exceptional (quality score: 25). Portfolio Insight classifies the stock as a high-growth stock with a 1-year upside of 41% and a 1-year target price of $368.

ACN non-GAAP EPS and dividends paid (TTM), with stock price overlay

The company’s non-GAAP payout ratio of 41% is low for most companies, so annual dividend increases around 10% should be possible.

Cisco Systems (CSCO) – Information Technology

CSCO designs, manufactures, and sells Internet protocol-based products and services. The company also delivers integrated solutions to develop and connect networks around the world. CSCO serves businesses of various sizes, public institutions, governments, and communications service providers. The company was founded in 1984 and is headquartered in San Jose, California.

CSCO valuation and key metrics and a performance comparison with SPY over the past decade

CSCO is rated Exceptional (quality score: 25) and offers the highest yield of this month’s selections. Portfolio Insight classifies CSCO as a slow-growth stock with a 1-year upside of 12% and a 1-year target price of $50.

CSCO non-GAAP EPS and dividends paid (TTM), with stock price overlay

CSCO’s non-GAAP payout ratio of 45% is low for most companies, but I expect only modest dividend growth in the future, probably less than 5%.

Apple (AAPL) – Information Technology

Headquartered in Cupertino, California, AAPL designs, manufactures, and markets smart phones, personal computers, tablets, wearables, and accessories worldwide. The company also sells a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. AAPL was founded in 1977.

AAPL valuation and key metrics, as well as a performance comparison with SPY over the past decade

AAPL is rated Excellent (quality score: 24). Portfolio Insight classifies AAPL as a high-growth stock with a 1-year upside of 17% and a 1-year target price of $161.

AAPL non-GAAP EPS and dividends paid (TTM), with stock price overlay

The company’s non-GAAP payout ratio of 15% is very low and I expect annual dividend increases of at least 7% in the future.

Mastercard (MA) – Information Technology

MA, a technology company, provides transaction processing and other payment-related products and services in the United States and internationally. The company offers payment solutions and services under the MasterCard, Maestro, and Cirrus brands. MA was founded in 1966 and is headquartered in Purchase, New York.

MA valuation and key metrics, as well as a performance comparison with SPY over the past decade

MA is rated Excellent (quality score: 25) and is one of two stocks in this month’s list with a favorable Chowder Number. Portfolio Insight classifies MA as a high-growth stock with a 1-year upside of 41% and a 1-year target price of $448.

MA non-GAAP EPS and dividends paid (TTM), with stock price overlay

The company has ample room to continue paying and raising its dividend, given its very low non-GAAP payout ratio of only 24%. so the company has ample room to continue paying and raising its dividend. I think annual increases of at least 10% is likely.

Concluding Remarks

This month’s selection of seven stocks are among the top 50 companies in JUST Capital's 2022 Rankings.

Furthermore, these are excellent dividend growth stocks and all but AAPL trade below their respective Buy Below prices.

I own all the stocks in my DivGro portfolio and I think these are excellent candidates for consideration!

Here's a comparative analysis of an equal-weighted portfolio of this month's seven DG stocks:

Source: Finbox.com

From a price-performance perspective, the portfolio would have outperformed the S&P 500 over the last five years by a margin of 2.35-to-1. Finbox considers all of the stocks to be undervalued.

As always, I advise readers to do their due diligence before investing.

Thanks for reading, and take care, everybody!

Please follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

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<![CDATA[3 Cheap Dividend Stocks to Buy in November]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/3-cheap-dividend-stocks-to-buy-in-novemberhttps://www.thestreet.com/dividendstrategists/dividend-ideas/3-cheap-dividend-stocks-to-buy-in-novemberTue, 01 Nov 2022 16:23:01 GMTThis year's correction brings some great opportunities for investors looking for good deals. More dividend stocks have become too cheap to ignore.

As the S&P 500 kept sliding in November due to higher interest rates and a persistent inflation, more dividend stocks became too cheap to ignore. We have seen the stock market trading at crazy valuations for many years. This year's correction brings some great opportunities for investors looking for good deals. I've identified three undervalued stocks that could be great addition to your portfolio this November.

Air Products & Chemicals (APD)

Air Products and Chemicals, Inc. is an industrial gases company. The Company provides essential industrial gases, related equipment and applications to customers in various industries, including refining, chemical, metals, electronics, manufacturing, and food and beverage. APD is the largest supplier of hydrogen and helium in the world, with several facilities on customer sites. It serves multiple customers and various industries. Switching costs are high for its customers. However, its high CAPEX (over $14B) combine with higher interest rates give investors headaches. The market also fears that APD won’t be able to pass the increase of commodity prices (notably higher natural gas prices) to its customers.

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Investment Thesis

APD has a diverse way of positioning its business in a sector where most are stuck with commodity price fluctuations. As a provider of industrial gases, APD signs long-term contracts with its customers. Industrial customers are more concerned with stability and reliability than costs, since gases make up a small part of their expenses but are vital to their business. APD strategically acquired Shell’s and GE’s gasification businesses in 2018. The company became a leader in its industry and has opened doors to expand its business in China and India. APD has an impressive backlog of projects that we think will continue to improve its top tier return on invested capital. APD’s ambitious growth plan, including $14.1B to be spent on its project backlog, has potential to continue improving return on invested capital. Demand for hydrogen should continue to increase in 2022 and 2023 as demand for jet fuel recovers.

Potential Risks

While the company’s core business is protected with long-term contracts, growth is still linked to the economic cycle. As an industrial gas supplier, APD’s sales are contingent on the demand for gases. It seems that the company recovered from the last economic downturn, however demand remains cyclical. Industry competitors also made valuable acquisitions recently: Air Liquide bought Airgas in 2016 (market cap of over $80B) and the Praxair-Linde merger in 2018 (market cap of over $170B) resulted in a second giant with whom APD must compete. The resulting competition for market share is fierce, with price wars leading to lower margins. Higher raw material input costs could also put pressure on ADP’s bottom line. While APD has great prospects for expanding its business in emerging markets, other players also have available the same opportunity.

Dividend Growth Perspective

Air Products & Chemicals Dividend Growth

Air Products & Chemicals has a stellar dividend streak that began in 1982. While the stock price more than doubled between 2016 and 2020, its dividend increased from $0.81/share to $1.50/share (+88%). In 2022, the company rewarded shareholders with a very strong 8% increase (to $1.62/share). That made the yield a little more attractive at 2.5%. We think APD should generate enough free cash to fund dividends, and with both payout and cash payout ratios under control, shareholders can expect more dividend growth in the coming years. There is no doubt that APD is a candidate for Dividend King status in the future.

STAG Industrial (STAG)

As the name suggests, STAG industrial is an industrial REIT. The Company is focused on the acquisition, ownership and operation of industrial properties throughout the United States. The Company owns approximately 559 buildings in 40 states with approximately 111 million rentable square feet, consisting of approximately warehouse/distribution building and light manufacturing buildings, two flex/office buildings Value Add Portfolio buildings. It owns both single-and multi-tenant properties. As it’s the case for many REITs, STAG is being left for dead by the market as investors fear higher interest rates would struggle FFO (funds from operations) going forward.

Investment Thesis

After years of being the underdogs, Industrials are now seeing major growth thanks to e-commerce and the pandemic. While the growth of e-tenants’ credit profiles is important, the need for warehouse space keeps growing. STAG is one of the largest players in the industry and uses its size and strong balance sheet to acquire more real estate. The REIT has 40% of its customers involved in e-commerce activity. We appreciate STAG’s highly diversified tenant base offering warehouses to multiple industries. Roughly 55% of their tenants’ credit profiles are publicly rated and 30% of all tenants are investment grade companies. STAG focuses on smaller and individual properties. This enables the REIT to face less competition and improve diversification.

Potential Risks

REITs need debt to grow, and STAG’s debt continues to increase quarter over quarter. The company has more than doubled its debt to reach approximately $1.8B over the past 5 years. Still, STAG possesses a credit rating of BAA3 (Moody’s) and BBB (Fitch). The issue with such an aggressive growth plan is not only the debt levels but also the risk of becoming too big. There have been massive investments in the industrial REIT sector, and the participants in that market could reach an oversupply. We like the business and the monthly dividend, but we think there is little upside potential at this point; for the first time in some time, STAG reported a drop in revenue in Q2 2022. We see property prices increasing, and there may be less feasible deals for STAG to pursue; stockholders should keep an eye on the Commercial Real Estate arena if they hold STAG.

Dividend Growth Perspective

Stag Industrial Dividend Growth

STAG offers a good yield of 4.6% with monthly distribution. This is perfect for income-seeking investors. Through the REIT’s diversification and stellar business model, an investor can expect to get paid for several years. Unfortunately, the latest dividend increase was minimal. The paycheck should follow inflation, but don’t expect much more out of it. We can look at STAG as a “deluxe” bond. Its business model has proven to be “Covid-19 proof”, so an investor can rest easy with this investment.

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Church & Dwight (CHD)

Church & Dwight Co. develops, manufactures and markets a range of consumer household and personal care products and specialty products focused on animal and food production, chemicals and cleaners. Its consumer products are focused principally on its 14 brands. CHD is known for iconic brands Arm & Hammer, OxiClean, Trojan, and First Response.

Investment Thesis

CHD has a remarkable business model, characterized by strategic acquisitions in markets that it can improve. In 2019, the firm announced the addition of Flawless, which manufactures electric shaving products for women. The firm acquired Zicam, a leading brand in the cough/cold shortening category, in 2020. Following those acquisitions, their marketing department worked at securing additional market share. Since the company sells personal care and household products, which are staples, sales likely won’t plummet during a recession. For the remainder of 2022, the company could face margin pressure due to a concentrated supplier base and co-manufacturers.

Potential Risks

While CHD has built a solid portfolio of well-known brands, it faces fierce competition. The company competes with large conglomerates, which put additional pressure on prices. Also, major retailers, such as Walmart, enjoy strong negotiating power. Add to this rising transportation costs and raw material inflation and you have a perfect storm working to decrease margins. Management’s decision to invest heavily in R&D and marketing to keep their edge seems to be the proven path to success. Earnings beating expectations over the last several quarters has been driven by either a favorable tax rate, lower-than-expected marketing spend, and/or incentive compensation, which makes one wonder about the quality of these earnings.

Dividend Growth Perspective

Church & Dwight Dividend Growth

CHD has successfully increased its dividend annually since 2000. While the company isn’t attractive to income seeking investors, we can expect CHD to reward with a higher paycheck each year. Management tends to use the bulk of its cash to fund acquisitions, R&D, and marketing. Payout ratios should remain low, leaving additional room for future dividend growth. Over the past 5 years, CHD has had a high mid-single digit increase rate of 7.3% CAGR. While the dividend has surged from 10 years ago, we find a 6% growth rate more sustainable over the long term. The latest dividend increase was a disappointing 4% in 2022. If you would like to add CHD to your portfolio, we advise waiting for a more reasonable stock price.

I know how hard it is to invest when stocks don’t seem to trade at their fair value

Don’t you hate not knowing when to buy or sell stocks? There are too many investing articles contradicting one another. This creates confusion and leaves you with the impression you will not reach financial independence. It doesn’t have to be this way. I’ve built a free recession-proof portfolio workbook which will give you the actionable tools you need to invest with confidence and reach financial freedom.

This workbook is a guide to help you achieve three things:

  • Invest with conviction and address directly your buy/sell questions.
  • Build and manage your portfolio through difficult times.
  • Enjoy your retirement.

Download your free ebook now.

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<![CDATA[ETF Battles: Which High Yield Nasdaq Dividend Income ETF is Best?]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/high-yield-nasdaq-dividend-income-etf-is-best-etf-battleshttps://www.thestreet.com/dividendstrategists/dividend-ideas/high-yield-nasdaq-dividend-income-etf-is-best-etf-battlesThu, 27 Oct 2022 14:24:31 GMTIn this episode, it's a matchup between the Nuveen Nasdaq 100 Dynamic Overwrite Fund (QQQX), the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) and the Global X Nasdaq 100 Covered Call & Growth ETF (QYLG).

Note: If you're a frequent follower or reader of this site, you know that I often post ETF Guide's "ETF Battles" web series episodes. They've always included a roster of high level judges to assess and measure the ETFs featured, which is why I was excited to be invited to participate in ETF Battles as a judge!

If you've ever wondered what I sound like in person, here's your chance! My thanks to Ron and ETF Guide for feeling that I'm qualified to appear on their show!

And there will be more to come soon in the future!

**********

Note: I'm excited to be partnering with ETF Guide to bring you their weekly web series, "ETF Battles".

ETF Guide founder, Ron DeLegge, explains that in a typical "battle", "each fund is judged against the other in key categories like cost, exposure strategy, performance and a mystery category."

Two industry experts are brought in to debate the ETFs and eventually declare a winner.

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For financial professionals and active traders, ETF Guide offers premium research, including ETF trade alerts via text message delivered straight to your mobile device. They also offer a full suite of online financial education courses and, for ETF sponsors, customized research services, product education, and back-end marketing support.

Be sure to check out links to both ETF Guide and the judges down below! Enjoy the battle!


In this episode of ETF Battles, Ron DeLegge @ETFguide referees an audience requested showdown between Nasdaq high income funds - the Nuveen Nasdaq 100 Dynamic Overwrite Fund (QQQX), the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) and the Global X Nasdaq 100 Covered Call & Growth ETF (QYLG). Which high income fund is the better choice for stock market investors? 

Program judges Shana Sissel from Banríon Capital Management and John Davi at Astoria Portfolio Advisors analyze this audience requested ETF matchup. 

Each ETF is judged against the other in key categories like cost, exposure strategy, performance, yield and a mystery category. Find out who wins the battle! 

******* 

ETF Battles is sponsored by Direxion Investments 

Direxion Daily Leveraged & Inverse ETFs. Know the risks. Proceed Boldly. 

Visit http://www.Direxion.com 

******* 

Get in touch with our judges 

Shana Orczyk Sissel (Banríon Capital Management) https://www.banrioncapital.com/ 

John Davi (Astoria Portfolio Advisors) https://www.astoriaadvisors.com/ 

******* 

YOUR RESOURCES FROM RON 

Margin of Safety tool: Join our waiting list http://tinyurl.com/muhwcy7s 

Get Ron's weekly newsletter https://tinyurl.com/2p8bxy82 

Free ETF Guides https://tinyurl.com/4uvfx4m7 

Get feedback on your portfolio's performance https://tinyurl.com/cz4ahj52 

Get your ETF Battles gear here: https://tinyurl.com/27uj6hmv 

******* 

WATCH OUR SEASON 3 ETF BATTLES PLAYLIST https://www.youtube.com/playlist?list... 

#stockmarket #nasdaq #etf

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<![CDATA[Interest Rates Increases and Opportunities (Part 2)]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/interest-rates-increases-and-opportunities-part-2https://www.thestreet.com/dividendstrategists/dividend-ideas/interest-rates-increases-and-opportunities-part-2Wed, 26 Oct 2022 14:22:20 GMTI'm completing my list of favorite stocks within each sector that are impacted by higher interest rates.

Last week, I’ve discussed the impact of higher interest rates on the market and started to make a list of my favorite stocks for each sector. Today, I complete my sector tour with 6 more sectors.

Health Care

Abbott Laboratories (ABT) is among the most stable dividend grower in this sector. After spinning off its research-based activities into AbbVie (ABBV) several years ago, ABT now focuses on various medical devices, nutritional products, and branded generic medicine distribution. Its major acquisitions in 2014 and 2017 strengthened the company and created numerous growth vectors for years to follow. ABT has successfully integrated St. Jude Medical, which opened the door to the structural heart product industry. ABT has a long history of successful product launches and has aggressively cut its costs and improved its margins (including new facilities in China). You can expect EPS to grow more quickly in the coming years. The company has a strong profile and ignoring this stock for your portfolio or watch list would be a mistake. The rapid COVID-19 test is also a strong player in ABT’s medical product arsenal.

Industrials

During economic downturns, railroads like Union Pacific (UNP) and CSX (CSX) will drop in price and offer you a great opportunity. However, you must remain patient to see the upside as those stocks will go down if we confront a potential deep recession. UNP manages the largest railroad in North America. This network can’t be replicated and offers a unique route to transport goods to Western ports leading to Asia. UNP also manages all 6 major rail gateways between the U.S. and Mexico. With 10% of its revenue coming from Mexico, UNP is well-positioned to capture growth coming from south of the border. UNP’s coal transportation shipments are on the decrease. While coal is in a secular decline, UNP benefits from the cheap coal originating from the Powder River Basin. The pandemic doesn’t seem to have affected the railroads but more recently the winter storm has. A rebound in demand for many products (intermodal, agriculture, chemicals, etc.) is supporting the bullish thesis.

Information Technology

I will not reinvent the wheel here as you know my favorite tech stocks. Apple (AAPL), Microsoft (MSFT), Texas Instruments (TXN) and Broadcom (AVGO) have three things in common: #1 They are mature companies counting on stable revenues, #2 They generate tons of cash flow, and #3 They also count on several growth vectors for the next 10 years. If you are looking for a decent yield, Broadcom at 3.35% is probably your best bet.

Broadcom is in a growth phase; it manufactures one of the best RF filters used by all high-end smartphones to improve connectivity. We could assume that companies like Apple would not want to use subpar products and risk the quality of their connectivity. AVGO’s large size also brings economies of scale and enables it to build millions of filters. Its growth-by-acquisition strategy has rendered the company an expert in integrating companies. Expect AVGO to benefit from higher spending from cloud customers and telecom providers that are looking to upgrade their infrastructure and networks. We’re very confident in management’s execution and expect AVGO to benefit from higher spending from cloud customers looking to upgrade their infrastructure and networks.

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Materials

Like the energy sector, you won’t find many long-term dividend growers in this sector. However, Air Products and Chemicals (APD) is standing on top of the crowd with its 40 years of dividend increases. The company offers a decent yield (2.60%) and the dividend increased by 70% over the past 5 years. That’s more than enough to cover inflation. APD is part of our Dividend Rockstar List!

APD has a diverse way of positioning its business in a sector where most are stuck with commodity price fluctuations. As a provider of industrial gases, APD signs long-term contracts with its customers. Industrial customers are more concerned with stability and reliability than costs, since gases make up a small part of their expenses but are vital to their business. APD strategically acquired Shell’s and GE’s gasification businesses in 2018. The company became a leader in its industry and has opened doors to expand its business in China and India. APD has an impressive backlog of projects that we think will continue to improve its top tier return on invested capital. APD’s ambitious growth plan, including $14.1B to be spent on its project backlog, has potential to continue improving return on invested capital. Demand for hydrogen should continue to increase in 2022 and 2023 as demand for jet fuel recovers.

Real Estate

Equinix (EQIX), a data center REIT, is showing a perfect dividend triangle and is trading at 2020 levels (before the pandemic). The last time it offered a yield above 2.50% was in late 2018, right at the bottom of this quick bear market. If you are concerned about dividend growth rates, EQIX should ease your mind with an annualized growth rate above 10% over the past 5 years.

The beauty behind the EQIX business model is that it is both poised for strong growth and hard to replicate. EQIX excels in matching customers in the data and cloud service arenas with each other. Its cloud-based global platform, through a distributed infrastructure, is a critical source of differentiation making EQIX the partner of choice for some of the largest technology companies. With over 10,000 customers including 1,800 networks, EQIX is a well-diversified cash cow. The acquisition of Packet for $335M should help deployment and delivery of its interconnected edge services. The only problem is that the stock price has been soaring consistently, however after a pullback in early 2022, it is looking more attractive. This might be a good entry point if you would like EQIX to be a part of your portfolio.

Utilities

Since the purpose of this list is to give you “safe” ideas, I’d go with water utilities in the U.S. American Water Works (AWK) and American States Water (AWR) offer a modest yield (close to 2%) but show a long history of dividend increases. Water utilities offer an essential service combined with repetitive purchases. You can’t go wrong.

The investment thesis for such a company is simple: an investor is buying shares of a monopoly that is selling an essential product with repeat purchases. This reflects well on its dividend triangle! With a highly fragmented industry and the urgent need for heavy investment in water connections, a leader of its size will surely find a way to grow its business. The company surfs on three earnings growth vectors: favorable regulatory frameworks, increasing operational efficiency, and acquisitions. Water needs will continue to increase as the population grows and luckily, the company operates a near recession proof business. Over the next 5 years, AWK purports that it has opportunities to acquire up to 1.2 million customers, placing it in a position to benefit from continually increasing cash flows.

FINAL THOUGHTS

Higher interest rates will force most companies to tighten their budgets. Only the most profitable and stable businesses will do well while the others will suffer. If you anticipate a tough winter, you might want to review your portfolio with this in mind.

The pandemic accelerated the inevitable: global shortage and high inflation

It was already in the books as an inverted demographic pyramid led to a lack of qualified workers. Too many just-in-time facilities were stopped for too long, creating delays everywhere. Billions of dollars injected by central banks inflated demand when there was no offer. It’s the perfect storm.

What is coming up this fall? More inflation and more interest rate hikes! What do you think the market will do?

I know I didn’t paint an optimistic picture here, but it’s the cold, harsh reality. It doesn’t mean you have to suffer your way through the fall. It doesn’t mean that you should endure losses and dividend cuts.

I recently hosted a webinar on how to invest in a time of crisis. I’ll address the delicate situation of being a retiree (or soon to retire) in this crazy market.

Watch the replay now (it’s free, no strings attached!)

See you there!

Mike

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<![CDATA[Crown Castle: Choosing A Stock For My November Dividend Reinvestment]]>https://www.thestreet.com/dividendstrategists/stock-analysis/crown-castle-choosing-stock-for-november-dividend-reinvestmenthttps://www.thestreet.com/dividendstrategists/stock-analysis/crown-castle-choosing-stock-for-november-dividend-reinvestmentTue, 25 Oct 2022 15:57:27 GMTWhen selecting a dividend stock, I generally favor companies that have been vetted for quality, attractive dividend characteristics, financial soundness, and the like.

In my public Dividend Growth Portfolio, I reinvest dividends monthly.

Unlike many dividend investors, I don’t drip them, which means that I do not automatically reinvest them back into the stocks that sent them to me. Rather, I collect them and then hand-pick a stock to buy with them.

When selecting a stock, I generally favor building up a position that I already own. After all, those companies have been vetted for quality, attractive dividend characteristics, financial soundness, and the like.

One stock under consideration for my November reinvestment is Crown Castle (CCI). I purchased CCI once, in February, when I started a position in it. It sits at 1.3% of my portfolio.

Crown Castle

Crown Castle is a REIT (real estate investment trust) that bills itself as the nation’s largest provider of shared communications infrastructure. It owns cell towers, short-range small cell nodes, and thousands of miles of fiber. It focuses on the United States, and it has a presence in every major domestic market.

Crown Castle (CCI Investor Presentation)

As you are probably aware, the amount of data being generated nowadays is huge and growing exponentially. New terms have been coined to measure it, such as “datasphere” (referring to all data everywhere) and “zettabyte.”

View the original article to see embedded media.

source: IDC DataAge 2025 whitepaper
(Oxford Languages)

Moving all that data around and connecting entities is an exploding business, with emerging markets in 5G, the internet of things, and smart city technologies, not to mention markets that are more established but still growing.

(CCI Investor Presentation)

CCI is right in the middle of all this, committed to providing the nation’s wireless carriers with prime real estate assets they need to run their networks.

One step in selecting companies is to rate their quality, using rankings from sources that I have come to trust over the years. Here is CCI’s Quality Snapshot.

(CCI Quality Snapshot by author)

Crown Castle clocks in as a solidly investable stock, scoring 18 out of 25 possible points. If you’d like more detail on how I derive Quality Snapshots, see this video.

I create other snapshots, and I’d like to share one more with you: CCI’s Dividend Snapshot:

(CCI Dividend Snapshot by author)

If you would like to see how I create Dividend Snapshots, see this video. CCI’s score of 27 out of 35 possible points is above average, and it includes a 6.5% dividend increase just announced. The company has stated that its target is to grow the dividend 7-8% per year over the long term.

CCI’s dividend situation has improved since I first bought it.

  • Its yield is higher, now at 4.9%.
  • It has added another year of dividend increases with the one just announced.

CCI’s higher yield brings us to my final consideration: Valuation. The reason that CCI’s yield is so high now is that its price has been dropping like a rock.

(Source: E-Trade, 10/20/22)

In fact, as I write this, it’s down over 3% just today (October 20). That’s a little puzzling, as CCI just issued its quarterly report, and it was pretty positive. Jay Brown, CCI’s CEO, said this:

The dividend increase is supported by the expected growth in cash flows in 2023 and reflects our confidence in the strength of our business model despite the challenging global macroeconomic environment. I believe we remain in the early stages of 5G development in the U.S., providing a long runway of growth in demand for our comprehensive communications infrastructure offering across towers, small cells and fiber. Our customers continue to upgrade their macro tower networks, and we expect another year of strong growth in 2023.

Yield and price move in opposite directions, so CCI’s price dive has caused its yield to shoot up, as shown here:

(Source: Simply Safe Dividends)

The ratio between a company’s current yield and its 5-year average yield is one of four metrics that I most often use in valuing a stock. I won’t get into all those details here, but here’s my assessment of CCI’s valuation:

(CCI Valuation Snapshot by author)

CCI has a better valuation now than when I first bought it in February. One last thing: CCI is registering as a “Buy” or “Strong Buy” among most of the analysts that follow it.

(E-Trade)

I won’t make my final decision for a couple of weeks, but currently I find Crown Castle to be a high-quality candidate with a very attractive dividend resume. And it’s undervalued.

Not only that, but the ex-dividend date for CCI’s new increase is not until December 14, so if I do buy CCI in November, I’ll get more shares eligible for the newly increased dividend.

That, DGI friends, is my favorite scenario for investing: High quality + good dividend story + discounted price.

Thanks for reading.

--Dave Van Knapp

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<![CDATA[Interest Rates Increases and Opportunities (Part 1)]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/interest-rates-increases-and-opportunities-part-1https://www.thestreet.com/dividendstrategists/dividend-ideas/interest-rates-increases-and-opportunities-part-1Tue, 18 Oct 2022 14:37:00 GMTToday, we’ll review some of my favorite picks considering these higher interest rates for each sectors.

Inflation is good for the economy up to a point. A few percentage points of inflation are often a sign of a healthy economy. Most people work, they want or need goods, demand grows strong, and there is a small race to acquire those goods. When there is a shortage of goods and an increase of demand at the same time, you get high inflation. This is where we are currently.

While most companies are working on global shortage issues, this doesn’t stop people from wanting goods. Therefore, increasing the offer isn’t enough (and most importantly not fast enough) to slowdown the inflation. What’s the best way to kill inflation? Kill the economy. Of course, Central banks will tell you they prefer a smooth landing or an economic pause. But when you increase interest rates rapidly it’s like putting both your feet on the brakes while driving at highway speed.

Overnight Fed Funds Rate

While the FED are increasing rates at a fast pace, we are still very far from the rates that were prevalent in the 80’s. In fact, we are only getting close to the rates in effect after the tech bubble in the early 2000’s. But more rate increases are expected, and investors are getting nervous. Today, we’ll review some of my favorite picks considering these higher interest rates for each sectors.

Communication Services

This sector doesn’t offer companies with strong dividend triangles, and I will continue to ignore AT&T and Verizon. However, Activision Blizzard (ATVI) shows great upside considering Microsoft agreed to buy it at $95/share. It may not happen, but ATVI is still offering a great potential going forward.

The deal is expected to be concluded in fiscal 2023, after all regulators went through it. Shares are trading at $72, so there is some upside there that accounts for the risk of the deal falling through. ATVI’s management team has recently been dealing with sexual harassment allegations and working through the MSFT deal. I believe that the deal should close and think it unlikely that MSFT would away.

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Consumer Discretionary

Genuine Parts (GPC) is probably the most boring and the safest play (but be ready to pay the price). GPC is a Dividend King (click here to get the full list of all companies that increased their dividend for more than 50 years.) with 50,000 employees across 10,400 sites.

Over the years, GPC has built a solid reputation through high-level service and high-quality parts. 75% of its auto parts sales come from the commercial segment (garages). This segment lends itself to highly consistent order patterns. Genuine Parts is also known for its never-ending appetite when it comes to buying out its competitors. A winning strategy for any portfolio building method is to pick strong companies with established business models that have become leaders in their industry. GPC is the parent company of NAPA Auto Parts, which is a great performer during recessionary environments. We expect growth to be driven by an increasing U.S. vehicle age, which rose to a record high of 12.1 years in 2021. In 2022, the stock experienced a drop, but has since recovered. Take advantage of the occasional market drops to purchase some shares!

Among stocks that have iconic brands and took a serious beating, you can find Home Depot (HD), Nike (NKE), VF Corporation (VFC), and Starbucks (SBUX).

Consumer Staples

There is a long list of stable dividend growers in this sector. One that deserve your attention is definitely Clorox (CLX). The company may have enjoyed benefits over the pandemic, but they weren’t there to stay. While the revenue growth numbers are steady, revenue increases prior to the pandemic were mediocre. The company’s cash flow is fueled by its strong brand portfolio as it enjoys strong brand recognition and pricing power. Nearly 85% of Clorox’s sales come from its home turf in the USA. More than 80% of Clorox’s portfolio of products stands at places #1 and #2 in brand rankings. Consumers are still willing to pay for quality and known brands. CLX uses its cash to invest in R&D and acquisitions as the company has set very specific metrics to complete future acquisitions.

Energy

Classic plays like Chevron (CVX) and Exxon Mobil (XOM) should be considered for their resilience during difficult times. Since CVX invested massively in the past, many projects are now in production. Its timing was perfect, as it is now enjoying higher oil prices. Production capacity is growing fast which enables CVX to surf oil booms. The lack of exploration in 2020 and international tensions have led to a supply-demand imbalance. CVX will enjoy much greater cash flows as it invested at the right time. The company is now leaner and more efficient. Longer-term, we think CVX will expand its offerings in low-carbon solutions, renewables and hydrogen. Unfortunately, the stock price has been stagnant for many years now. An investor can buy CVX for its yield (3.5%) and modest dividend growth.

Financials

BlackRock (BLK) is on top of my list at this point. The company will show weaker revenue (and EPS) as fees on assets under management (AUM) will be lower because of this down market. However, relationships with institutional investors won’t be impacted and they remain the largest player in many investing areas.

BLK is a winner and will be a keeper for decades to come. BLK’s net inflow of assets under management continues to increase quarter after quarter. BLK enjoys size and scale like no other asset manager. The company sees steady organic growth even for its higher fee earnings equity products. In other words, there is always new money coming in. The company is a leader in the growing investment field of ETFs and has a strong relationship with several institutional customers. Institutional investors are more inclined to stay with their providers for several years. We believe BLK’s strong position in passive investments and strong fund performance will attract assets at above industry-average rates over the next few years.

Stay Tuned for more ideas next week!

I think that’s enough for this week! Next week, I’ll conclude with part 2, including my favorite stocks in the healthcare, industrial, materials, real estate and the utility sector. You don’t want to miss this one!

The pandemic accelerated the inevitable: global shortage and high inflation

It was already in the books as an inverted demographic pyramid led to a lack of qualified workers. Too many just-in-time facilities were stopped for too long, creating delays everywhere. Billions of dollars injected by central banks inflated demand when there was no offer. It’s the perfect storm.

What is coming up this fall? More inflation and more interest rate hikes! What do you think the market will do?

I know I didn’t paint an optimistic picture here, but it’s the cold, harsh reality. It doesn’t mean you have to suffer your way through the fall. It doesn’t mean that you should endure losses and dividend cuts.

I recently hosted a webinar on how to invest in a time of crisis. I’ll address the delicate situation of being a retiree (or soon to retire) in this crazy market.

Watch the replay now (it’s free, no strings attached!)

See you there!

Mike

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<![CDATA[Why I Am a Dividend Growth Investor]]>https://www.thestreet.com/dividendstrategists/investing-strategy/why-i-am-a-dividend-growth-investorhttps://www.thestreet.com/dividendstrategists/investing-strategy/why-i-am-a-dividend-growth-investorThu, 13 Oct 2022 15:11:27 GMTIf you are focused on income — rather than prices — then you can enjoy watching your income go up even while the market is going down.

Hi. My name is Dave Van Knapp, and this is my first article for TheStreet. I am happy to become a contributor to Dividend Strategists.

I have been a dividend-growth (DG) investor for about 15 years, and I completely converted all of my wife’s and my stock investments to the DG strategy about 10 years ago. I did that as I came to realize that DG investing provides a clear path to the financial objectives that I was trying to achieve.

There are millions of strategies for stock investing. There is no single “correct” way to invest.

While many define investment success as “beating the market,” it is a better approach to consider your own goals: What do you want to accomplish? When? How are you going to get there? How much risk can you stomach?

I have different goals from beating the market, as do many other investors who employ the DG strategy. My goals include:

  • Create a sufficient, reliable income stream that grows faster than inflation.
  • Be pretty confident about how much cash I will get from dividends and when I will get it
  • Feel that I am very likely to get that cash when I need it.

Ultimately, my goal is to use that cash in retirement.

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The Top Reasons I Like DG Investing

With those goals in mind, here are the most important reasons that I use the DG strategy.

Reason #1. The process is smooth and less emotional

Like most investors, and as advised by most advisers, I used to invest for maximum total return. You know, “What’s your number?”

When I was a total-return (TR) investor, trying to beat the market, I felt great when my stocks were doing well. But I also realized that their total value fluctuated every minute that the stock market was open. Sometimes they fluctuated a lot.

It can be hard to keep your eyes off of that. I was happy when the market went up and tense when it went down.

Many stock investors follow the market and react emotionally to what it is doing. CNBC's programming is built around that prevailing interest in stock prices. They use colorful flashing displays to play to their audience’s price fixation. Rising prices are shown in a soothing green, but price declines appear in alarming red. Even a meaningless price drop of 0.01% is shown in red.

But after I switched from price focus to income focus in 2007-2008, my interest in the market dwindled to a fraction of what it used to be. CNBC hardly reports on dividends, so I hardly watch the channel any more. The charts on CNBC are almost 100% price charts, which is not what I am interested in any more.

Let’s look at the volatility difference between prices and dividends, looking back 10 years through the lens of a typical DG stock, Johnson & Johnson (JNJ):

Johnson & Johnson (JNJ) dividend

I used to focus on the orange price line. You can see that the price jumps around all the time on a short-term basis. That volatility can make investors uncomfortable, even fearful, when it goes down. On CNBC or any financial channel or site, all those down periods would be red, day after day, week after week.

Volatility often makes people trade too much, because they try to be in for the upside, get out for the downside, then back in for the next upside.

It is possible to make money that way, but it is very hard. Studies show that most investors underperform the very stocks they invest in, because they jump in and out at bad times.

The truth of that is shown in the following chart. Note the orange “Average Investor” bar near the right side, and compare it to the various equity categories that I circled. The average investor underperforms almost every kind of stock!

(Source: J.P. Morgan Asset Management)

Now think back to the first chart that showed JNJ’s price and dividends. As a dividend-growth investor, I don’t pay much attention to the orange price line. What I care about is the purple dividend line, shown here with the price line removed.

Johnson & Johnson (JNJ) dividend

The dividend line tells a different story from the price line. Instead of all the volatility, the dividend line is a smooth stair-step, moving constantly up and to the right. Each step up is a dividend raise, one each year. Unlike price, the dividend line doesn’t fall.

JNJ has been paying dividends for more than 100 years, and it has raised them for 59 consecutive years. I own JNJ in my real-life, public Dividend Growth Portfolio. JNJ’s price swings don’t concern me at all. The ride on the purple line is smooth and positive. The only volatility is upward. It generates no fear.

It is a near certainty that JNJ will raise their dividend each year. The only real unknown is how much they will raise it. JNJ raised it 6.6% this year, and their 5-year average raise has been about 6% per year.

As a DG investor, the temptation to sell or trim a stock like JNJ comes not when its price is plunging, but when its price is high. The temptation is not based on fear, it is simply business-like opportunism. Higher price equals lower yield. Maybe I could get more income elsewhere, from a stock with a better yield. Maybe the high price has resulted in significant overvaluation or caused JNJ to take up more of my portfolio than I want it to.

The point is that the temptation to sell when JNJ's price is up rather than down is an inversion of the usual emotional response to price changes. Since the usual response causes investors to underperform, inverting it is a good thing.

What I’ve found is that dividend-growth investors seem to develop a layer of insulation from down-market panic. I don’t think that anyone enjoys seeing their total wealth go down. But if you are focused on income — rather than prices — then you can enjoy watching your income go up even while the market is going down.

An investor focused on prices gets too much feedback from the wrong place — the market. It is difficult to interpret the meaning of price changes. Are they based on mere market noise, company problems, or something else? Many investors will not hold on long enough to find out, choosing instead to sell as prices drop, because the fear engendered by price declines and paper losses triggers a flight response. Such fear can make the investor feel that they must do something, and what they often do is sell.

Dividend growth stocks help sidestep this problem by providing positive returns that arrive in cash every quarter (or every month from some companies). The positive feedback helps reduce the temptation to sell at unfortunate times. Some investors call this “getting paid to wait” for their stocks – or the whole market – to stop falling.

After I reorganized my investing around the DG strategy, I found that I was no longer stressed about stock price fluctuations or the market. It was a major paradigm shift, and once I made it, investing became much easier.

My income goes up each year no matter what prices the market assigns to my stocks. The market may crash, but dividends don’t crash.

Reason #2. Dividend-growth stocks raise their dividends

My next reason – continual dividend increases – is actually made up of several sub-reasons.

For one thing, a dividend increase can usually be interpreted as a positive sign that management has confidence in the company’s prospects. Most companies look ahead a few years when considering whether to increase the dividend. During good economic times, a company with a sound approach does not want to raise the dividend so high that it might need to cut or freeze it later if its business slows down.

Another positive point about dividend increases is that the historical dividend growth patterns at many companies result from deliberate managed dividend policies, and the payments become quite reliable. A long-standing dividend program can become woven into the culture of a company. Once that policy has been established, it takes extraordinarily bad circumstances for the company to abandon it.

One DG favorite, Realty Income Trust (O), has even branded itself around its dividend program. It calls itself the Monthly Dividend Company, even registering that as a trademark.

Realty Income

Realty Income has a current streak of 29 straight years of annual dividend increases, including uninterrupted raises straight through the real-estate collapse in 2007-09. While any company can be wounded during bad economic times, the best dividend companies increase their dividends even during recessions. When hard times hit, the dividend growth rate may slow, but the company is still able to increase its dividend a little.

This may come as a surprise, but the most recent Dividend Champions document shows that 143 companies have raised their dividends for at least 25 years in a row, and another 364 have done it for at least 10 years. The DG investor has lots of great companies to choose from.

One wonderful result of reliable dividend increases across a portfolio of DG stocks is that an investor can set realistic long-term income goals, and his or her progress toward them can be tracked.

Here’s another wonderful result: When a company increases its dividend, your yield on cost—that is, the dividend payout divided by your original investment—goes up. This happens even though the current yield quoted online fluctuates.

How can this be? It’s simple math. Say you purchase XYZ Inc. when its price is $100 per share and its yield is 4%. If you buy 10 shares (cost = $1000), the stock pays you $40 in Year 1 of ownership.

No matter how the stock’s price changes after you buy it, your yield on cost will always be based on that original $1000. Unless you later add shares at different prices, your cost of ownership stays the same.

So let’s say that XYZ’s earnings increase 10%, and the company bumps up its dividend by the same percentage. That means in Year 2 the company pays out $44 to you, so the yield on your original $1000 investment increases to 4.4%: $44 / $1000.

This annual growth of the dividend cashflow is a very powerful aspect of DG stocks. It is why DG investors are content with slower-growing prices. It is why retirees — seeking income that keeps up with inflation — become attracted to these stocks. It is why many income investors consider dividend growth stocks to be more attractive than bonds, whose yields are fixed. It is why dividend investors can tolerate market pullbacks and fluctuating prices.

This is not abstract theory: It works in real life. In my public Dividend Growth Portfolio, my yield on cost just hit 13%. In other words, the portfolio is now sending me, in cash each year, an amount equal to 13% of what I spent to start the portfolio. And as dividend increases roll in like clockwork, that percentage goes up steadily each year.

It is hard to overstate the importance of reliable dividend growth as a component in the DG strategy. Dividend-growth investors are looking for rising income, not fixed income, and dividend-growth stocks deliver income streams that can rise to significant levels over time.

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Reason #3. You can reinvest dividends to make them increase faster

That 13% yield on cost didn’t get there only via dividend increases. I reinvest my incoming dividends monthly. Reinvestment creates a Dividend Growth Machine for the investor:

Source: Author diagram

Shareholders can do three things with dividends: Reinvest them, keep them, or spend them.

If you reinvest the dividends (either in the same stock or elsewhere), the reinvestment brings compounding into play. As you purchase more shares with the dividends, the number of shares on which you receive dividends goes up. They then generate additional dividends, which can themselves be reinvested.

This creates a virtuous cycle of dividends  reinvestment  more shares  more dividends, etc. This is compounding in action. It’s like a snowball rolling down a hill: It builds wealth and income at an accelerating pace. Your share base grows faster and faster because of the reinvestments. The additional shares, in turn, accelerate the growth of the dividends you receive.

If the dividends themselves are increasing, as they will in a well-selected DG portfolio, that acts as a super-charger to the process just described. The reinvestment of growing dividends builds wealth at an even faster pace, beyond that of the companies themselves.

If you draw dividends off as cash to spend, of course, the compounding effect of reinvestment is not present. Your income stream will still grow, however, in line with the dividend increases themselves.

Reason #4. Dividend growth companies are usually outstanding businesses

The best dividend growth companies typically have:

  • Proven, time-tested business models
  • Steady annual growth, with many more up years than down years
  • Sustainable competitive advantages (moats) and the resources needed to defend or expand them, which gives them pricing power
  • Product lines filled with essential stuff that people need, like food, electricity, healthcare, diapers, and beverages
  • Low debt loads, solid balance sheets, and good credit ratings; many DG companies have light capital requirements
  • The strength needed not only to survive recessions, but even to gain market share when competitors struggle
  • Reliable generation of excess cash

It requires an outstanding business to increase dividends for many years in a row. Weak businesses simply cannot do it.

Reason #5. You do not have to sell the stock to get the dividend

If a stock pays no dividends, its total return comes solely from price changes, and you can only realize them if you sell the stock. There is no other financial benefit from ownership.

Price changes are determined by the irrational Mr. Market. Stock prices fluctuate all over the place, sometimes wildly and frighteningly. That’s shown by this chart, which simply plots the price of SPY (an ETF that tracks the S&P 500) over 2021 and 2022.

S&P 500

Unlike 2021, 2022 has been a very hard and confounding year for price-watchers riveted by the market.

In contrast, dividends are sent to shareholders directly by the company. The market has nothing to do with dividends.

DG investors often see stocks differently from other stock owners. Stocks become like cash machines that generate streams of income. The dividend investor does not lose all interest in the prices of those shares, but price doesn’t matter as much. During bull or bear markets, and even recessions, the dividends keep increasing.

Critics of dividend investing sometimes state that “a dollar is a dollar,” so what difference does it make if you get a dollar from dividends or a dollar from selling a few shares?

The difference should be obvious. In order to get your hands on a dollar of capital gains, you must sell shares. After selling them, you own fewer shares. The shares you sold can no longer accomplish anything for you, since you no longer own them.

Dividend returns do not deplete the number of shares that you own. The shares are still in your portfolio, and they will continue to spin out cash to you each month or each quarter.

Reason #6. Dividend stocks tend to be less volatile

Many dividend-growth stocks are less volatile than other stocks. Their prices change less, and change more slowly, than the prices of other companies.

I can illustrate that from my own public Dividend Growth Portfolio. I have loaded the portfolio into Simply Safe Dividends, and it calculates that my portfolio’s Beta is 0.57.

Beta measures price volatility relative to the S&P 500. The beta of 0.57 means that my portfolio has been only 57% as volatile as the index over the past five years.

This muted price volatility gets back to a point I made earlier: It’s simply easier, as an investor, not to get worked up about price zig-zags when you hold steadier stocks.

Not only that, the dividends help to cushion portfolio losses when equity prices are declining. The smoother overall ride generally makes dividend growth stocks easier to hold during times of market distress.

And that completes my top reasons for being a dividend-growth investor. When you invest using the DG strategy, you expect to succeed right along with the companies you own. Price aside, that shared success happens when they not only send you cash that reflects their business achievements, but also grow the amount each year along with their own growth.

Thanks for reading.

--Dave Van Knapp

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<![CDATA[6 Stocks That Increased Their Dividend Recently]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/6-stocks-increased-their-dividend-recentlyhttps://www.thestreet.com/dividendstrategists/dividend-ideas/6-stocks-increased-their-dividend-recentlyWed, 12 Oct 2022 13:45:32 GMTWhile the market keeps heading lower and lower, how about focusing on what really matters? Dividend growth!

While the market keeps heading lower and lower, how about focusing on what really matters? Dividend growth! Dividend growers are usually good businesses with a robust balance sheet. They should not let you down during recessions.

6 Stocks That Increased Their Dividend Recently

Today, I highlight six companies that announced a dividend raise in the past six weeks.

Bank OZK (OZK) +3%

On October 3rd, Bank of OZK increased its dividend once again from $0.32/share to $0.33/share. This regional bank habitually rewards shareholders quarterly with a dividend increase. Its dividend growth policy has been going on for the past 49 quarters.

The small bank with a big vision has a strong reputation in the savings and loan banking industry. As a traditional bank, OZK is well-positioned to benefit from the U.S. economic tailwind. We trust the man behind the bank, George Gleason II, who has been President of OZK since 1979. He’s the mastermind behind the bank’s growth, and we think that he’ll stick around for years to come. Its Real Estate Specialities Group is a loan growth powerhouse, which, in Q2 2022, just reported its highest level of originations since 2017 (and third record breaking quarter in a row). OZK is exiting the crowded loan activity market to focus on Real Estate specialities. As the bulk of the bank’s projects are in NYC, the bank could either perform very well or poorly in the coming months, depending on the economy’s state. The recent pullback is yielding a PE multiple of ~10x which is hard to find nowadays; this might be a good entry point if OZK is on your watchlist.

Texas Instruments (TXN) +7.8%

On September 15th, Texas Instruments made a double announcement. It first increased its dividend from $$1.15/share to $1.24/share (+7.8%) and the board of directors also authorized to repurchase an additional $15B worth of stocks over time.

TXN has the size to benefit from economies of scale and stay ahead of their competition. The company has leading market share in both analog chips and digital signal processors. While there has not been much revenue growth over the past few years, the company’s future looks bright. TXN has benefitted from the fragmented market to purchase many manufacturers at low prices and consolidate its position in the analog chip business. With the rise of the IoT, its chips will have the possibility of being used in various other industries in the future. Demand for automotive and industrial will be robust in 2022. TXN has been able to secure customers and generate additional cross-selling opportunities as its sales team works to bring in additional revenues. TXN enjoys a sticky business with embedded analog chips for customers.

Watch our video on TXN here.

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Starbucks (SBUX) +8.2%

On September 28th, Starbucks announced it will raise its dividend from $0.49/share to $0.53/share for an 8.2% increase. The iconic coffee maker has raised its dividend for 12 consecutive years already.

Starbucks enjoys one of the strongest brands in the world and uses that strength to expand its stores across China. With 500-600 new store openings per quarter, SBUX is growing rapidly in this country, with Chinese stores being much more profitable than U.S. stores. SBUX is successfully achieving its “transformation” plan by closing underperforming stores to open smaller, more efficient stores. This should help boost both sales and margins. The coffee maker also counts on its powerful membership program (over 24.8M members) to boost its sales. Its reward program often grows its members by double-digits (30% in 2021). SBUX has accelerated plans to open about 2,000 net new stores in FY 22 (+75% are expected internationally, including in China).

Microsoft (MSFT) +10%

On September 20th, Microsoft announced the increase of its dividend from $0.62/share to $0.68/share for a 9.7% increase. The tech giant shows double-digit annualized dividend growth rate for the past ten years. Needless to say, MSFT is part of our Dividend Rockstar List!

Microsoft is one of the oldest and newest tech companies, all at the same time. While it benefits from a strong core business model that generates cash flow through subscriptions, management has proven its ability to develop other growth vectors. Its most recent success is with Azure, which is No. 2 in public cloud services. Azure is on the path to strong growth over the coming years. Cloud services will also be integral to the future of many businesses, and this segment is already exhibiting tremendous growth. MSFT recently acquired a player in artificial intelligence (Nuance) for $19.7B. This will mesh well with MSFT’s business portfolio and open the door to healthcare solutions. We would also like to mention MSFT’s acquisition of Activision, which may bring with it some tailwinds. Finally, if you have been waiting for an entry point with MSFT, the downtrend in the tech sector could be bringing us to that potential entry point.

Lockheed Martin (LMT) +7.1%

On September 30th, The F-35 maker increased its dividend from $2.80/share to $3.00/share for a 7.1% increase. It was its 20th consecutive dividend increase. LMT is well on its way to becoming a dividend aristocrat! (25+ years with a dividend increase).

As geopolitical tensions continue to rise around the globe, Lockheed Martin is in a favorable position to offer its products to other countries. LMT counts on its F-35 fighter aircraft program and missile defense to grow in the upcoming years. After Russia’s invasion, Congress set FY22 defense funding $40B above FY21. We see another large U.S. defense spending increase of at least $40B for FY23. LMT will benefit from this ramp-up as a key provider of missile systems that Ukraine and U.S. allies are now ordering in large numbers. There are very few competitors in these markets and LMT is increasing its order backlog at a rapid pace. LMT has a new CEO, and we have yet to see his full impact on the company. LMT exhibits a strong dividend triangle, which adds confidence to future growth. Finally, it seems that a bolstered defense capability is now viewed as a more effective deterrent than diplomacy!

Honeywell (HON) +5.1%

On September 30th, Honeywell increased its dividend from $0.98/share to $1.03/share for 5.1% increase. It was its 13th consecutive dividend increase.

An investment in HON is first and foremost an investment in a very strong dividend growth company. It benefits from a strong U.S. income base and can use its cash flow to seek growth in other markets, where it continues to develop its infrastructure. HON will continue to thrive by providing warehouse automation products such as their Intelligrated systems to improve their customers’ businesses. HON is using its software business across all its lines to offer high quality products. Commercial construction could be a long-term tailwind for the company, while Oil & Gas could help at least in the short-term. HON’s increasingly profitable margins will lead to additional profits and an increase in the stock price.

The pandemic accelerated the inevitable: global shortage and high inflation

It was already in the books as an inverted demographic pyramid led to a lack of qualified workers. Too many just-in-time facilities were stopped for too long, creating delays everywhere. Billions of dollars injected by central banks inflated demand when there was no offer. It’s the perfect storm.

What is coming up this fall? More inflation and more interest rate hikes! What do you think the market will do?

I know I didn’t paint an optimistic picture here, but it’s the cold, harsh reality. It doesn’t mean you have to suffer your way through the fall. It doesn’t mean that you should endure losses and dividend cuts.

I recently hosted a webinar on how to invest in a time of crisis. I’ll address the delicate situation of being a retiree (or soon to retire) in this crazy market.

Watch the replay now (it’s free, no strings attached!)

See you there!

Mike

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<![CDATA[3 Cheap Stocks to Buy in October]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/3-cheap-stocks-to-buy-in-octoberhttps://www.thestreet.com/dividendstrategists/dividend-ideas/3-cheap-stocks-to-buy-in-octoberWed, 05 Oct 2022 13:02:11 GMTAs the S&P 500 kept sliding in September due to higher interest rates and a persistent inflation, more dividend stocks became too cheap to ignore.

As the S&P 500 kept sliding in September due to higher interest rates and a persistent inflation, more dividend stocks became too cheap to ignore. We have seen the stock market trading at crazy valuations for many years. This year's correction brings some great opportunities for investors looking for good deals. I've identified three undervalued stocks that could be great addition to your portfolio this October.

Innovative Industrial Properties (IIPR)

Innovative Industrial Properties, Inc. is an internally-managed real estate investment trust (REIT). The Company is focused on the acquisition, ownership, and management of specialized industrial properties leased to state-licensed operators for their regulated state-licensed cannabis facilities.

Innovative Industrial Properties took at deep nosedive on April 14th after Blue Orca’s short report was released. Blue Orca claims that IIPR is a...

You can find the report here.

IIPR took another hit this summer when it reported that one of its tenants, Kings Garden, forgot to send a $2M+ cheque for its monthly rent. We are talking about 8% of IIPR’s yearly rental income. It’s not good news, but it’s not a catastrophe either (considering the REIT keeps the facility and will likely rent it to another player in this growing industry).

Investment Thesis

The cannabis industry is growing quickly, but it isn’t doing so without the occasional hiccup. A proven way to enjoy part of this growth is by investing in a REIT that specializes in medically licensed marijuana growers. An investor won’t get the same hype as with a grower, but IIPR is looking to expand. U.S regulated cannabis sales are expected to go from $12.4B in 2019 to $34B in 2025. Both the company’s funds from operations (FFO) and dividends are growing to follow suit. In 2021, the company reported a 75% increase in AFFO while making strategic acquisitions. IIPR also reported 3 dividend increases in 2021, maintaining its strong growth. The stock has experienced a big pullback in 2022 and seems to be attractive. Check out their strong dividend triangle!

Potential Risks

IIPR is not involved in producing any cannabis related products. However, this doesn’t mean that its stock won’t be affected by the hype or fear surrounding marijuana. As we can see on the price graph, if one invests in IIPR, they will experience volatility in the stock price. It’s reassuring to see a company growing quickly, but if management pays too much for their next acquisition or fails to integrate it properly, the result could be negative. While management seeks new acquisition targets, the cannabis bubble also pushes their property prices higher. The cannabis sector is highly sensitive to regulations; what if regulations change? There is news that Kings Garden, one of IIPR’s tenants, is defaulting in July, and we’ll keep an eye on this for developments.

Dividend Growth Perspective

The REIT paid its first dividend in 2017. Although we appreciate IIPR’s growth potential, we have used more conservative numbers for our DDM calculations. At the current price, an investor will enjoy an impressive ~8% yield. Management seems confident in the company’s future as it grows both its business and its dividend at a similar pace. The REIT targets a 75-85% AFFO payout ratio. So far IIPR exhibits an impressive dividend triangle! While 2022 is a tougher year, management showed confidence and increased its distribution by 3% last month. This will be a wild ride and should be considered a speculative play, but we doubt that there will be a more attractive entry point in the near future.

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3m Co (MMM)

3M Company is a diversified global manufacturer, technology innovator and marketer of a variety of products and services. The Company operates through four segments: Safety and Industrial, Transportation and Electronics, Health Care and Consumer. 3M recently announced its intent to spin off its Health Care business and intends to complete the pending Food Safety transaction with Neogen by Sep'22.

Investment Thesis

3M has been on a downward spiral over the last few months as its COVID fame fades. We still believe that 3M’s competitive advantages are well-renowned and industrial clients are reluctant to abandon such a world-class company for competitors as they know MMM will deliver quality products. 3M possesses one of the strongest business models among the dividend kings and its dividend growth potential will continue to be one of its most valuable characteristics to investors. By becoming a leader in R&D in many sectors, 3M has created a truly unique economic moat. This will not be a high-growth investment, but at current levels, an investment in MMM is safe as steady cash flows are virtually guaranteed.

Potential Risks

MMM has been penalized by the stock market since the beginning of the year. This was because the company faced many short-term headwinds such as a slowing in both the automotive and semiconductor sectors and faced legal issues including their liability in products containing PFAS (per and polyfluoroalkyl substances). In 2019, several lawsuits arose in the U.S., bringing dark clouds. Some of MMM’s products are becoming commodities, where competitors could undercut each other with more aggressive pricing. After the price has dropped to 52-week lows, the stock now offers an attractive 5% yield.

Dividend Growth Perspective

3M has been paying dividends to its shareholders for over a century and has had more than 50 consecutive years of increases and is considered as a Dividend King (click here to see the full list). Over the past few years, MMM has been even more generous with its dividend increases and the payout ratio has jumped to over 50%. Still, there is plenty of room for management to increase the dividend in the future. We have, however, reduced our dividend growth expectations down to mid-single digits. Nonetheless, MMM is a very interesting pick for retirees looking for a strong and consistent dividend payer.

Lam Research (LRCX)

Lam Research Corporation is a supplier of wafer fabrication equipment and services to the semiconductor industry. The Company designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits.

Investment Thesis

Lam succeeds in the market with solid results and surfs on many tailwinds. It is gaining market share in wafer fabrication equipment (WFE) used for radio frequency amplifiers, LEDs, optical computer components, and CPUs for computers. Lam Research’s strength lies in its high margins. The company counts many strong chipmakers (Samsung, Electronic Arts, Taiwan Semiconductor Manufacturing) as customers and offers a strategic service to them. These large chipmakers need Lam’s high-tech products to remain successful and LRCX is therefore expected to grow faster than other players in its industry. We expect LRCX to benefit from elevated investments by memory chip customers in the coming quarters, led by NAND investments. The demand from the need to increase capacity and productivity by chipmakers will be key for growth. LRCX currently exhibits a very strong dividend triangle.

Potential Risks

Lam Research faces strong competition from Applied Material (AMAT) and Tokyo Electron. If LRCX invests well in R&D to develop cutting edge technologies, it will be a dominant player. However, new players keep innovating with the right technologies. While facing strong competition, LRCX must deal with the cyclical demand of semiconductors. We expect the company to see some growth in the coming years after most of its customers have reduced their inventory over the past 2 years. As we saw in 2018, LRCX’s stock price can be quite volatile as the demand for semiconductors fluctuates. We are bullish in the long-term demand for semiconductors, but in the short-term, demand is highly cyclical and in line with companies’ investment cycles.

Dividend Growth Perspective

With such a strong dividend triangle, you can guess that LRCX is part of our Dividend Rockstar List. Lam paid its first dividend in 2014. Its quarterly payment began at $0.18/share and has risen to $1.725 since then. After its bullish stock price appreciation in 2019, LRCX now only offers a 1.9% yield. LRCX exhibits a strong dividend triangle where both revenues and earnings are on an uptrend. The company currently has payout ratios of about 18%, leaving plenty of room for future double-digit dividend growth. Considering the yield, an investment in LRCX is more for the future of its high-tech products than for its current dividend income.

The Pandemic Accelerated The Inevitable: Global Shortage & High Inflation

It was already in the books as an inverted demographic pyramid led to a lack of qualified workers. Too many just-in-time facilities were stopped for too long, creating delays everywhere. Billions of dollars injected by central banks inflated demand when there was no offer. It’s the perfect storm.

What is coming up this fall? More inflation and more interest rate hikes! What do you think the market will do?

I know I didn’t paint an optimistic picture here, but it’s the cold, harsh reality. It doesn’t mean you have to suffer your way through the fall. It doesn’t mean that you should endure losses and dividend cuts.

I recently hosted a webinar on how to invest in a time of crisis. I’ll address the delicate situation of being a retiree (or soon to retire) in this crazy market.

Watch the replay now (it’s free, no strings attached!)

See you there!

Mike

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<![CDATA[Great Buy or Value Trap? 3 Stocks That Fell More Than 40% in 2022]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/great-buy-or-value-trap-3-stocks-fell-more-than-40-in-2022https://www.thestreet.com/dividendstrategists/dividend-ideas/great-buy-or-value-trap-3-stocks-fell-more-than-40-in-2022Tue, 27 Sep 2022 13:42:22 GMTWhile some stocks will go to the bottom of the ocean and never recover, others will rise back and thrive.

I like to compare the stock market to a wave. When the tide rises (bull market), all stocks go up. When the wave hit the shore and crash (bear market), all stocks go down. However, while some will go to the bottom of the ocean and never recover, others will rise back and thrive.

Bear markets have this advantage: it's a rare opportunity where the market isn't efficient. You can catch a falling knife and boost your return when the stock recovers. Unfortunately, not all falling knives are an opportunity. Some are just a value trap.

Today, we look at three stocks that have lost more than 40% since the beginning of the year and determine if it's a great buy or a value trap.

FedEx (FDX)

FDX's 1Q'23 results were adversely affected by softness in global volumes mostly towards the quarter-end, and especially weakness in Asia and service challenges in Europe. The stock crash on earnings day and FDX is now 45% year-to-date.

Investment Thesis

The business model is fairly simple: FedEx, along with competitor UPS are the reference brand names for shipping parcels, both locally and internationally. FDX has proven its ability to work through oil price crises, recessions, and even cyber-pirate attacks, all while still rewarding its shareholders. With an impressive air fleet and 50,000 drop boxes, FDX has the size and scale to remain competitive in this oligopoly. At DSR, we prefer UPS to FDX mostly due to the difference in dividend growth policies. FDX disappointed when the company stopped increasing its dividend in 2019 due to its stagnant growth in 2017-2020. The company came back strong in 2021 and offered a substantial dividend increase (from $0.75/share to $1.15/share). Nonetheless, FDX was able to ride the e-commerce pandemic wave, which we expect it to gain further momentum from in years to come.

Potential Risks

FDX is highly exposed to a possible international economic slowdown. With Europe slowing down and the remaining commercial tension with China, it’s hard to believe that the global economy will surge over the coming quarters. Utilizing a large air fleet at full capacity is very costly, and FDX will have to maintain these costs, even during a recession. Finally, labor and equipment shortages could damage FDX by putting pressure on margins in the short to mid-term.

Dividend Growth Perspective

FedEx Dividend Growth

FedEx posted 9 consecutive years of dividend increases but put a hold on their dividend growth policy in 2019, only resuming it in 2021. Yet, the uncertain economic outlook, could affect FDX’s cash flow. As previously mentioned, FDX already resumed increases with a generate raise of 53%. Will it continue its dividend growth policy now that we face a recession?

Verdict: Probably a Great Buy

With a forward P/E ratio of 8 and a 3% yield, FedEx looks like a great buy if you are willing to through the recession. You get paid to wait, but expect fluctuations.

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Intel (INTC)

Horror! Intel reported a very bad quarter with a quarterly loss (-$0.11 EPS) and revenue down 17%. Do I need to tell you INTC missed all analysts' expectations? On top of that, Intel lowered its full-year outlook, citing a weak economy and execution problems. Data Center revenue fell 16% year-over-year, while the company's largest segment, Client Computing, accounted for $7.7B in sales, down 25% year-over-year.

Investment Thesis

INTC is the King of microprocessors. As it enjoys strong cash flows from its PC line, the company has expanded into new business segments. INTC developed a completely new business model in cloud computing with its data-centric services. With this fast-growing segment, INTC has garnered some love from the market. Unfortunately, new chip development debacles (delays) have raised concerns among investors. INTC generates strong cash flows from its core business while its data centric business (about 50% of revenue) is exhibiting double-digit growth. The foundry opportunity is a lucrative one, with an estimated $100 billion market by 2025. We believe INTC will benefit from the desire for a non-Asia footprint by U.S./European governments and corporations. Although the foundry is a huge opportunity, a project of this size could have its setbacks.

Potential Risks

INTC’s most significant risk is that technology evolves very quickly. INTC isn’t the only one interested in server processors, IoT and AI technology. The company faces strong competition from other “old techno’s” such as NVIDA and AMD. In 2020, INTC failed to develop its next generation processors on time. Competitors such as AMD jumped on the occasion. We also saw Apple and Microsoft developing their own microprocessors for their Mac and Microsoft Surface. INTC isn’t alone in its market any longer. The company is doing well with data centers, but it has failed miserably to enter one of the most lucrative markets in tech over the past decade: smartphones. For a chipmaker of its size, we would have expected dominance in that field. This demonstrates that Intel isn’t flawless. Finally, we see a market share loss to AMD on the CPU server market through to 2023.

Dividend Growth Perspective

Intel Dividend Growth

Intel has had consecutive dividend increases since 2015. Bolstered by its new growth drivers, INTC has a low payout ratio. With both payout ratios under 50%, expect mid to high single-digit dividend growth for the coming years. The PC business will continue to generate strong cash flow that is not only used to finance the company’s growth, but also to buy back shares and increase its dividend payouts. INTC increased its dividend in 2022 by 5%, from $0.3475 to $0.365.

Verdict: Value Trap

This company looks like another IBM (IBM). Intel is an iconic tech company that had glorious days during the PC era. Like IBM, Intel lacks growth, and its old business model is slowing down. Both revenues and earnings are on a downtrend.

Stanley Black & Decker Inc (SWK)

It wasn’t a good quarter for SWK. The company sharply cut its guidance for 2022 with adjusted EPS to $5.00-$6.00 (from $9.50-$10.50). This forced the stock price even lower. While the market is unsure, I see a very good opportunity to buy shares of a stellar business. SWK manages iconic brands and is #1 in many construction, DIY, auto repair, and industrial segments. Through its dominant position in various tool sectors, SWK generates steady cash flows, and this cash is used to buy back shares, increase its dividend systematically, and acquire other businesses.

Investment Thesis

SWK exhibits several strong pillars of a successful business. The company has been around for more than a century and has built strong brand recognition. Through its dominant position in various tool sectors, SWK generates steady cash flows, and this cash is used to buy back shares, increase its dividend systematically, and acquire other businesses. SWK has successfully integrated other brands such as Newell Brands and Craftsman in the past. Management intends to keep using its extra cash for additional acquisitions in the future. SWK has struck a great balance between organic and M&A growth. After the stock has been on a downtrend for the last year, we believe the stock price is attaining more attractive levels.

Potential Risks

The issue with such a company is that it’s very hard to buy its stock at a discount; the dividend discount model is not likely going to work as SWK exhibits a low yield with a steady, but not astronomical, dividend growth rate. Between 2016 and 2018, SWK’s price went from $100 to $180 before dropping to $110 amid the coronavirus crisis in early 2020. Fast forwarding to 2022, and we might be making sight of a purchase opportunity. The company reported decent earnings in Q1 2022. We believe that supply chain constraints might hurt SWK’s volume. In the long term, we see some upside as demand will drive higher prices.

Dividend Growth Perspective

Stanley Black & Decker Dividend Growth

SWK yield is not usually very attractive, but today it is yielding a decent ~2.7%. SWK has successfully increased its dividend yearly since 1967, qualifying the company to be a part of the elite group of Dividend Kings. The latest dividend increase was a strong one ($0.09/share or +12% in 2021), but we would not expect such increases in the future. Both payout ratios are well under control (under 40%), which means there is room to grow. If management maintains its policy, stockholders should expect mid to high single-digit increases moving forward.

Verdict: Great Buy!

Stanley Black & Decker has been suffering greatly in 2022 after seeing its stock price surge above $210 in 2021. Can you pass on buying a Dividend King after a 50%+ price drop? Not to mention that the company now trades at a forward P/E of 16.7 and has never offered such a generous yield in the past 10 years (excluding the quick 2020 pandemic market crash).

The Pandemic Accelerated the Inevitable: Global Shortage & High Inflation

It was already in the books as an inverted demographic pyramid led to a lack of qualified workers. Too many just-in-time facilities were stopped for too long, creating delays everywhere. Billions of dollars injected by central banks inflated demand when there was no offer. It’s the perfect storm.

What is coming up this fall? More inflation and more interest rate hikes! What do you think the market will do?

I know I didn’t paint an optimistic picture here, but it’s the cold, harsh reality. It doesn’t mean you have to suffer your way through the fall. It doesn’t mean that you should endure losses and dividend cuts.

I recently hosted a webinar on how to invest in a time of crisis. I’ll address the delicate situation of being a retiree (or soon to retire) in this crazy market.

Watch the replay now (it’s free, no strings attached!)

See you there!

Mike

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<![CDATA[The Most Popular Stocks at Dividend Stocks Rock]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/most-popular-stocks-at-dividend-stocks-rockhttps://www.thestreet.com/dividendstrategists/dividend-ideas/most-popular-stocks-at-dividend-stocks-rockWed, 21 Sep 2022 13:04:19 GMTTheir top 10 favorites stocks greatly outperformed the S&P 500 over the past ten years.

What if you could follow the most popular stocks held by savvy investors? In this article, we will look at the most popular stocks held by members at Dividend Stocks Rock. We used our DSR PRO database to identify which company is held by the most members (roughly 1,900 DSR PRO members).

Can they be reliable? On average, our members are aged between 55 and 70 and manage over $500,000. Their top 10 favorites stocks greatly outperformed the S&P 500 over the past ten years.

Here’s our review of the top 3:

Microsoft (MSFT)

Microsoft doesn't need any presentation. This giant tech company has deep roots with Corporate America. MSFT’s strength is in the many businesses using their services (Windows, software, servers, services, etc.). The company can count on its cloud services and gaming products to support long-term growth.

Investment Thesis

Microsoft is one of the oldest and newest tech companies, all at the same time. While it benefits from a strong core business model that generates cash flow through subscriptions, management has proven its ability to develop other growth vectors. Its most recent success is with Azure, which is No. 2 in public cloud services. Azure is on the path to strong growth over the coming years. Cloud services will also be integral to the future of many businesses, and this segment is already exhibiting tremendous growth. MSFT recently acquired a player in artificial intelligence (Nuance) for $19.7B. This will mesh well with MSFT’s business portfolio and open the door to healthcare solutions. We would also like to mention MSFT’s acquisition of Activision, which may bring with it some tailwinds. Finally, if you have been waiting for an entry point with MSFT, the downtrend in the tech sector could be bringing us to that potential entry point.

Microsoft is part of our Dividend Rock Stars list.

Potential Risks

Microsoft has several dark clouds hovering over it: the first is evidently the Windows desktop OS. Desktops are often replaced by smartphones, tablets, or 2-in-1 solutions, where Windows isn’t a major player. Desktops won’t disappear soon, but there won’t be much growth from them either. Microsoft is also seeing a slowdown in growth from its subscription business. Most of its product suites (Windows, Office) are mature products, which are good for cash flow generation, but won’t keep the market excited (as it is right now!). While Microsoft can count on Azure and Dynamics to ensure growth, both products are not leaders in their respective markets. The tech giant must wrestle with other companies just as large. The pandemic has helped grow sales in some of their business verticals such as cloud services and LinkedIn.

Dividend Growth Perspective

Microsoft has successfully increased its dividend yearly since 2004. Its yield used to be more attractive at approximately 3%, but the hype surrounding the stock has made it a low-yielding (~1%) stock. Even a double-digit dividend growth rate wasn’t enough to compensate for the stock price surge since 2015. Microsoft has a strong dividend triangle, and an investor can expect high-single-digit dividend increases for a while. Even after the 10% dividend increase in Q4 2021, the stock is yielding ~1%.

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Apple (AAPL)

Apple is one rare company showing a perfect dividend triangle. Apple is not only the most profitable smartphone makers, it can build multiple businesses around its iconic product. From AirPods to Apple watch, Apple has developed a great range of "mini" businesses generating billions in cash flow.

Investment Thesis

There is continued interest among consumers for premium products. AAPL’s first growth vector remains its iPhone. It is also seeing double-digit growth in its services division, which generates higher margins; services such as Apple Pay, Apple Music and Apple TV represent just the tip of the iceberg. We think that Services will benefit from rising paid subscribers (825M; up 165M from a year ago). As more iPhones are purchased, their users are inclined to purchase the services related to them. Apple’s iPhones and IOS are beloved by customers and are a symbol of stability and security in terms of technology. Management has become increasingly shareholder-friendly, as evidenced by strong dividend growth and massive share buybacks. AAPL is among the rare companies that don’t need to be first movers in order to impress as the company surprised the market once again, beating estimates by $0.09 and revenue by $3.28B in Q1 2022!

Potential Risks

There aren’t many headwinds that we can identify for Apple. We feared the recession would impact Apple’s results, but the company still saw many loyal customers upgrade their phones, and it seems like this happened again with the iPhone 13. It is well-known that tech companies need to continually innovate their product offerings to remain on even playing field with their competition. Apple protects its core products with a strong product ecosystem and additional services, however the introduction of a competitor’s new phone that could potentially erode iPhone sales remains a possibility. Finally, the competition in artificial intelligence has many contenders, such as Amazon and Google, just to name a few.

Dividend Growth Perspective

An investor shouldn’t be fooled by the low yield as AAPL will double its payment every 8 years going forward. Both payout and cash payout ratios are very low. With strong sales growth and consistent earnings increases, the company should maintain a double-digit dividend growth rate for years to come. Unfortunately, the latest dividend increase was only 4.5% (from $0.22/share to $0.23/share), but the company is in good shape to keep increasing its payment. Finally, take advantage of the recent pullback if you want to add AAPL to your portfolio!

AbbVie (ABBV)

Finally, AbbVie is the most generous yield in this top three (you can guess DSR members aim for total return more than high yielding stocks). AbbVie is a spin-off of a well-known Dividend King, Abbott Laboratories (ABT). ABT kept the medical devices segment and created AbbVie for its pharmaceutical activities. ABBV has made acquisitions to bolster its drug pipeline to a whole new level.

Investment Thesis

ABBV’s dependence on Humira, a tumor necrosis factor blocker that reduces the effects of inflammation, has been reduced over the past few years. Humira represented about 58% of profits in 2019, down to 36% in 2021. ABBV will lose Humira’s exclusivity in 2023. New drugs in the company’s immunology portfolio such as Skyrizi and Rinvoq are accelerating more aggressive growth. ABBV expects Rinvoq and Skyrizi to contribute over $15B in sales by 2025. ABBV’s growth is also fueled by its hematologic oncology portfolio, with growth of 8%. In addition, we see promising growth from its psoriasis and rheumatoid arthritis drugs. The company’s primary reason for acquiring Allergan was to diversify its revenue sources and find more diverse ways of extending its patents.

Potential Risks

As Humira’s patent expiration (2023 for the U.S.) is on the horizon, we are reminded of the pivotal role of patents and competition in the industry. Patents allows players to reap the benefits of billions invested in R&D, and while ABBV may be one discovery away from making billions, the same goes for many of their competitors. For instance, competitor Pfizer could impact ABBV’s sales expectations. Now, ABBV must convince the market that its pipeline is worthy of their investment despite Humira’s patent expiration, and a few more quarters may be necessary for this. ABBV also increased its leverage through the acquisition of Allergan. Failures in the pipeline, litigation, or even integration complications with Allergan, are risks that ABBV could face in the future.

Dividend Growth Perspective

ABBV has been generous with its shareholders as of late. The company has successfully increased its dividend since 1973 (including Abbott’s history). Management has more than doubled its payout in the past 5 years, in addition to buying back shares. With a yield of 4.5%, it is a great candidate for any retirement portfolio. The most recent dividend increase announcement in Q4 2021 (+8.5%) demonstrates high confidence from management.

The Pandemic Accelerated The Inevitable: Global Shortage and High Inflation

It was already in the books as an inverted demographic pyramid led to a lack of qualified workers. Too many just-in-time facilities were stopped for too long, creating delays everywhere. Billions of dollars injected by central banks inflated demand when there was no offer. It’s the perfect storm.

What is coming up this fall? More inflation and more interest rate hikes! What do you think the market will do?

I know I didn’t paint an optimistic picture here, but it’s the cold, harsh reality. It doesn’t mean you have to suffer your way through the fall. It doesn’t mean that you should endure losses and dividend cuts.

On Thursday, September 22nd, I’ll host a webinar on how to invest in a time of crisis. I’ll address the delicate situation of being a retiree (or soon to retire) in this crazy market.

Save your spot now (limited to 500 live attendees)

See you there!

Mike

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<![CDATA[2 Top Dividend Aristocrats That Currently Yield More Than 4%]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/2-top-dividend-aristocrats-yield-more-than-4https://www.thestreet.com/dividendstrategists/dividend-ideas/2-top-dividend-aristocrats-yield-more-than-4Mon, 19 Sep 2022 14:34:36 GMTThe bear market of 2022 has undoubtedly caused pain for investors, but it has also yielded some opportunities.

The bear market of 2022 has undoubtedly caused pain for investors, but it has also yielded some opportunities. Share price declines have pushed dividend yields higher and allowed income seekers the chance to capture a higher rate on new buys than they were able to in the past.

If you're willing to stick with high-performing dividend aristocrats during times like these, you can ride out these times and have confidence that your dividend payments will remain secure.

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Here are two dividend aristocrats that now yield more than 4%.

ExxonMobil (XOM)

Overview

ExxonMobil Corporation (XOM) is an American oil and gas corporation based in Irving, Texas. Exxon, the biggest oil refiner in the US, has benefited from the gap between the crude oil price and the petroleum products produced over the years.

Exxon has a 39-year history of increasing annual dividends, making it one of the Corporate American Dividend Aristocrats. It has used its strong cash flows to pay off debt and give money to shareholders in the form of dividends and buybacks of stock.

Dividend Analysis of ExxonMobil (XOM)

The dividend is the driving force behind ExxonMobil's stock price. Many investors have stuck with the oil giant because of its increasing income compared to its rivals, who lowered their dividends as oil prices fell.

ExxonMobil now pays out $3.7 in dividends annually, or a 4.0% trailing yield. Since 1983, the corporation has increased its dividend for 39 straight years.

With an 89% dividend payout ratio and management's dedication to dividends, investors can be assured that Exxon will maintain consistent dividend payouts with an increased yield in the future.

Dividend Yield

ExxonMobil Dividend Yield

Since March 10th, 1973, Exxon Mobil Corporation has paid quarterly dividends to its shareholders.

Exxon Mobil Corp. had a 3.7 dividend yield as of September 15, 2022, with a median of 3.2 for the Oil & Gas - Refining and Distribution sector. Last year, Exxon Mobil Corp's dividend yield was 6.5.

Exxon Mobil Corp. has paid quarterly dividends since March 10, 1973, ranging from 0.95 to 0.88 in 2022. The dividend yield on Exxon Mobil Corp shares has grown by an average of 3.7 per year during the previous five years.

Exxon’s dividend is one pledge that management has always kept. Exxon also thinks that its ability to control and raise dividend payments to its shareholders will be a big part of the future growth of the stock price.

In 2020, when oil prices plummeted due to a pandemic threat, Exxon's dividend yield increased to an all-time high of approximately 9.5%. The company never wavered from paying out a sizeable dividend and, in fact, increased it throughout the last few years. This was true even though the stock price had a lot of negative volatility since 2020.

Exonn now has one of the finest dividends available in the market, given its operating parameters and size. Unless stock prices soar, the management has no plans to further reduce the dividend yield it is currently offering.

Dividend History

ExxonMobil Dividend History

As a potential investor, you may want to look into Exxon Mobil Corp's stock dividend history before determining whether or not to buy this stock. Your understanding of the frequency, dependability and long-term growth of this company's dividend payments may all be gained by looking at the dividend history of the XOM stock.

The critical competitive advantage of ExxonMobil is its capacity to provide superior returns through the combination of low-cost assets and a low cost of capital. ExxonMobil raked it in when oil went for over $100 per barrel. Exxon has had to tighten its belt, though, with better capital allocation and operations ever since the price of oil dropped below the $50 per barrel range.

Now that oil has steadied, Exxon's management expects the price of oil will remain stable in the long run. Even if oil prices fall to a low of $40 per barrel, the corporation can still cover its current dividend.

This is a safe bet for many investors as even though there are fluctuations and turbulences in the oil barrel price and Exxon’s stock price, the dividends they will earn will be the same and will only increase if not for being constant. As mentioned earlier, Exxon’s dividend has only increased in the past 39 years, with the latest increase being in 2021, as shown in the graph below.

ExxonMobil Dividend Analysis

Dividend Sustainability

XOM has long been a favorite among dividend investors due to its 6% yield last year and nearly 4% yield this year. However, there are significant concerns about the sustainability of that dividend.

ExxonMobil distributes a $0.88 quarterly dividend or $3.52 per share yearly. The firm expects its diluted earnings per share for 2022 to be $9.14, which is significantly more than its yearly dividend. The payout ratio would, at worst, be around 38.4%. This payout ratio is very sustainable considering the low payout ratio of 38.4%.

Although not raising the dividend is preferable to the dividend cut that so many analysts had pegged as a likely conclusion, even though the company's financial stability was under severe strain due to heavy debt burdens, thin profit margins, and low oil prices in 2020, Exxon still managed to give promised dividends to its investors.

The situation seems more promising now that the COVID pandemic has been fully contained. ExxonMobil will function in a more profitable environment and make large expenditures on high-potential projects. Management reaffirmed its commitment to continuing to pay and raise the dividend recently. Analysts believe the next dividend raise will be significant, unlike the one-cent raise in 2021.

Cash Flow Analysis of ExxonMobil (XOM)

ExxonMobil Cash Flow Analysis

Exxon Mobil has been able to increase its cash flows over time significantly, and with further cost cuts, the corporation anticipates that trend to continue. Exxon, which suffered its first-ever financial loss during the pandemic as oil prices plummeted, is now the S&P 500 Index's third-largest free cash flow producer, trailing only Apple Inc. and Microsoft Corp.

After cutting costs and locking investment spending at historic lows, ExxonMobil is now well-positioned to gain from rising commodity prices. Exxon Mobil initially projected to have about $30 billion in extra cash after dividend expenditures, despite significant capital spending and growth in the past.

To make the most of new market opportunities, ExxonMobil is constantly boosting capital expenditures. Exxon Mobil is also planning to make significant investments in low-carbon technologies, creating a new industry that will bring in money in the future.

Debts Analysis for ExxonMobil

ExxonMobil Debt Analysis

Exxon Mobil's use of debt is relatively sensible. That indicates that they are increasing their level of risk to increase shareholder returns. Debt often becomes a significant issue when a firm finds it difficult to pay it off through capital raising or cash flow. The most typical scenario, however, is one in which a business manages its debt well and to its benefit.

According to Exxon's Annual Long Term Debt History, Exxon Mobil had US$42.5 billion in debt at the end of March 2022, a significant decrease from greater highs over the previous year. However, it does have US$11.1 billion in cash to counter this, resulting in net debt of around US$36.5 billion.

The net debt of Exxon Mobil is only 0.68 times its EBITDA. Moreover, despite being 38.3 times larger, its EBIT helps offset its interest expense. As a result, we don't want to be concerned about its extremely prudent use of debt.

ExxonMobil Financial Analysis

Should You Invest in ExxonMobil Considering Its Outstanding Dividend Payouts?

Exxon Mobil is a wise long-term investment owing to its willingness to fund energy initiatives and its comparatively longer reserve life. Exxon Mobil has kept investing in energy projects because it thinks that oil and gas demand will be higher than the market and industry anticipate. This belief has turned out to be correct, and the firm continues to do so.

The fact that XOM had sustained yearly dividend growth for 39 years running is something everyone should take note of. There is very little chance that XOM will ever have to reduce its existing dividend payout. Another important investing benefit for XOM is its dividend yield is higher than that of its main rivals and peers, especially the other US oil majors.

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AbbVie (ABBV)

Overview

AbbVie is a multinational pharmaceutical conglomerate based in the United States. It began business as an independent firm from its parent company Abbott in 2013.

Most of the 16 drugs that make up AbbVie's total pharmaceutical portfolio include Lupron, Androgel, and Creon (pancreas therapy). But Humira, an anti-inflammatory drug that is also one of the world's most popular medicines, is undoubtedly the company's best product.

AbbVie is also a dividend-growth firm. Since its early years as a division of Abbott, AbbVie has raised its dividend for more than 40 years straight. As a result, it belongs to the Dividend Aristocrats index like ExxonMobil.

Dividend Analysis of AbbVie (ABBV)

AbbVie pays a comparatively high dividend yield of 3.9%. That delivers far more dividend income than the typical S&P500 investment average, which offers just 1.3%. With a $10,000 investment, you could receive $390 more in dividend income each year from AbbVie. The difference becomes much more significant when you multiply it by the years you have owned the shares and add the consistent dividend increases the company produces. Here are some important dividend aspects you should consider, which can help you understand Abbvie better.

Dividend Yield

AbbVie Dividend Yield

Since February 15, 2013, AbbVie Inc. has distributed quarterly dividends to its stockholders. AbbVie Inc. has a dividend yield of 3.9 as of September 16, 2022, versus the pharmaceutical median of 0.

Last year, AbbVie Inc's dividend yield was 4.4. AbbVie Inc. distributed quarterly dividends starting on February 15, 2013, that ranged from 0.4 to 1.41 in 2022. The dividend yield on AbbVie Inc. shares has risen by an average of 3.2 per year during the previous five years.

Dividend History

AbbVie Dividend History

Before choosing to buy this investment, as a prospective investor, you might be interested in researching the dividend history of AbbVie Inc shares. On September 9, 2022, AbbVie (ABBV) confirmed that stockholders of record, as of October 13, 2022, will receive a $1.41 dividend per share on November 15, 2022. ABBV now offers shareholders an annual dividend of $5.64 per share or 3.92%.

The company has raised its dividend 6 times in the last five years, and during that time, its payout has increased by 15.91%. The payout ratio for ABBV is now 42% of earnings.

Without a doubt, there is no reason to worry right now regarding the dividend history and what AbbVie has to offer in the future in terms of dividends. In nearly the previous 12 months, AbbVie recorded a free cash flow of over $22 billion, compared to dividend payments of $9.5 billion. The company appears to be doing well, which is unlikely to change soon.

AbbVie Financial Analysis

Dividend Sustainability

AbbVie distributes a $1.41 quarterly dividend or $5.64 per share yearly. The firm expects its diluted earnings per share for 2022 to be between $13.78 and $13.98, which is significantly more than its yearly dividend.

The payout ratio would, at worst, be around 40.14%. This has been an outstanding improvement since last year's 86%. Also included in income under generally accepted accounting standards (GAAP) are non-cash expenses like amortization and depreciation.

AbbVie has a sizable cushion between its annual distribution and adjusted earnings, which should alleviate investors' concerns regarding its current payout, even with a potential loss in revenue from Humira(its best-selling drug) and weaker-than-expected results from Rinvoq in the future.

Cash Flow Analysis of AbbVie (ABBV)

AbbVie Cash Flow Analysis

In nearly the previous 12 months, AbbVie recorded a free cash flow of over $22 billion, compared to dividend payouts of $9.5 billion. The company seems to be in good form, which will not change very soon.

Even though cash is the heart of any organization, growth-oriented businesses are more vital and benefit from greater-than-average cash flow growth than established businesses. This is because increased cash flow helps these enterprises grow without requiring costly outside funding.

AbbVie currently has year-over-year cash flow growth of 58.7%, which is greater than several of its competitors. In actuality, the rate is comparable to the 8.8% industry average.

Investors should concentrate on the current cash flow increase, but evaluating the historical rate is essential to put the present reading into context. Compared to the industry average of 6.5% over the last three to five years, the firm's annual cash flow growth rate was 25.2%.

Debts Analysis for AbbVie (ABBV)

AbbVie Debt Analysis

According to the above chart, AbbVie's debt was US$73.2 billion at the end of June 2022, down from US$82.2 billion the previous year. It also had $9.96 billion in cash, so its net debt is approximately $63.2 billion.

According to AbbVie's most recent balance sheet, it had US$34.5 billion in liabilities within a year and US$94.0 billion in liabilities due after that. Even if this may seem like a lot, AbbVie has a sizable market cap of US$239.7 billion, so if necessary, it could potentially improve its balance sheet by raising capital.

AbbVie employs debt in a creative yet responsible way, with a debt to EBITDA ratio of 2.3. In keeping with that tendency, its trailing twelve-month EBIT was 8.5 times the interest expenses. Over the past three years, AbbVie has generated more free cash flows than EBIT. The most notable benefit for AbbVie on the balance sheet was that it appeared capable of securely converting EBIT to free cash flow. As we can see, even though AbbVie has a high level of debt and liabilities, AbbVie is doing a good job at debt management.

AbbVie Financial Analysis

Should You Invest in AbbVie Considering Its Outstanding Dividend Payouts?

You might earn $1,000 per year in dividend income from AbbVie with an investment of about $26,500 in the current market conditions. There are no certainties regarding dividend payouts, but AbbVie is a Dividend King with a good track record, and rate increases are likely to continue as long as the business generates strong earnings.

There is undoubtedly a route for investment in AbbVie to experience a considerable increase in value over time, given the firm's growth potential and high-yielding dividends. AbbVie's total returns over the previous ten years have been 538%, which is far more than the S&P 500's gains of just 227%. AbbVie has a bright future and makes a lot of money, which means that this pattern is unlikely to change. This is because AbbVie has a lot of cash flow and could use it to pursue more development opportunities to grow its pipeline.

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<![CDATA[Top Dividend Growth Stocks That Are Up More Than 10% In This Bear Market]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/top-dividend-growth-stocks-up-more-than-10-in-bear-markethttps://www.thestreet.com/dividendstrategists/dividend-ideas/top-dividend-growth-stocks-up-more-than-10-in-bear-marketThu, 15 Sep 2022 13:39:18 GMTWhile most investors are losing money with their portfolios, some companies are doing well.

Where can you invest in a bear market? The S&P 500 is flirting with -20% (including dividends), while the NASDAQ is clearly in bear territory. While most investors are losing money with their portfolios, some companies are doing well.

We'll look at three dividend stocks making investors smile in 2022.

Lockheed Martin (LMT) +17% YTD

Let’s start with a dividend grower showing almost 20% total return this year. Lockheed Martin lagged the market in 2021, but got a boost of love from the market once Russia declared war. The company traded at a low P/E for a while, but there is still room for growth. As of September, the forward P/E ratio is at 15. Not bad for an overvalued market, right?

Investment Thesis

LMT operates in a semi-monopoly (who else is making F-35’s?), thus it only has one large customer. The company experienced significant difficulty in growing its revenues prior to the acquisition of the Sikorsky Aircraft helicopter division, and it is unsure whether LMT will be able to grow Sikorsky helicopter revenues in such a competitive environment. Even the cost and performance of their F-35 program has been criticized. There is also a new recent large player in the market with the merger of Raytheon and United Technologies. LMT has a large pension plan burden which weighs heavily on the company’s balance sheet. Finally, LMT could face reduced margins caused by higher inflation (with 62% of sales from fixed contracts).

Lockheed Martin is part of our Dividend Rock Stars list.

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Potential Risks

LMT operates in a semi-monopoly (who else is making F-35’s?), thus it only has one large customer. The company experienced significant difficulty in growing its revenues prior to the acquisition of the Sikorsky Aircraft helicopter division, and it is unsure whether LMT will be able to grow Sikorsky helicopter revenues in such a competitive environment. Even the cost and performance of their F-35 program has been criticized. There is also a new recent large player in the market with the merger of Raytheon and United Technologies. LMT has a large pension plan burden which weighs heavily on the company’s balance sheet. Finally, LMT could face reduced margins caused by higher inflation (with 62% of sales from fixed contracts).

Dividend Growth Perspective

LMT has increased its dividend each year since 2004. It seems that it is navigating the perfect storm: as conflicts are rising around the globe, Congress has accepted Lockheed Martin’s efforts to seek out international opportunities. We expect LMT to not only grow its earnings in the coming years, but also to increase its revenues. LMT just rewarded shareholders with a dividend increase from $2.60 to $2.80. Shareholders can expect a high single-digit dividend growth rate along with continued growth in the market value of the company.

McKesson Corp (MCK) +40% YTD

While LMT’s performance (almost 20% up this year) is great, that’s nothing compared to our second stock: McKesson Corp (MCK) at +40%.

As the largest player in a complex environment, McKesson enjoys strong barriers to entry. The Company is focused on advancing health outcomes for patients everywhere. Its size allows the company to enjoy economies of scale through its wide distribution network.

Investment Thesis

The company is in a dominant position with one third of the pharmaceutical distribution market. Through its wide distribution network, MCK generates economies of scale and makes it difficult for its peers to compete. MCK basically takes away the complexity of dealing with pharmaceutical products for its customers. Therefore, businesses can focus on what they do best and let MCK deal with regulations. The company counts major players such as Walmart and CVS as customers. MCK has evolved through mergers, acquisitions, and spin-offs. To reduce margin pressures, the company has made several vertical acquisitions. After many transactions, MCK is now in the process of exiting its European businesses. The idea is to streamline its business and maintain a better focus. Our biggest concern right now is the high stock price.

Potential Risks

McKesson is currently enjoying a good rebound on the stock market. Still, keep in mind that shares once traded at over $200 not too long ago (2015). MCK is still operating in a highly competitive market with razor-thin margins. This forces the company to grow through additional acquisitions. The more vertical acquisitions the company makes, the more risk of integration it will face. In a move to simplify its business, MCK is selling its European segment. Being a giant in a highly regulated environment isn’t always a plus. In the event of a regulation shift, the company may suffer greatly. Finally, MCK and fellow “Big Three” pharma distributors ABC and CAH recently signed a settlement with 46 of 49 participating states to resolve most of the outstanding opioid litigation claims. MCK will have to pay $7.4B over 18 years.

Dividend Growth Perspective

MCK has increased its dividend consecutively every year since 2017. Its dividend streak isn’t impressive, but the company has been offering an increase here and there since 2009. Since both payout ratios are kept low, you can expect more increases moving forward. In any case, you shouldn’t pick MCK for its dividend growth potential or its yield. The company offers, at best, a 1% yield (0.5% now) with mid-single digit growth potential. The play on MCK is about its ability to dominate the pharmaceutical and medical distribution markets.

ExxonMobil (XOM) +60% YTD

Let’s end this article with a bang: Exxon Mobil at +60%! It's no secret; that the energy sector has been THE place to invest since we discover the first covid vaccine. We decided to highlight a classic dividend grower in this industry.

Investment Thesis

XOM has been a cash flow generating machine for several decades. Cash flow from operations used to cover much more than dividend payments, however the pandemic changed the landscape of the oil industry. Management has reaffirmed its commitment to its shareholders during the pandemic. Exxon’s massive investment in oil and gas production in the past was hefty, but surely boosted XOM’s long-term reserves, allowing XOM to have about 50% of its production to come from long-term reserves. This should be a great cash flow source and should support future dividend payments if we see an economic recovery. With stronger prices for crude oil, XOM is reaping the benefits of its past investments, and has been driving the stock price up. The short term might have some upside.

Potential Risks

While XOM has proven its ability to navigate difficult circumstances many times, the company remains subject to commodity price fluctuations; we have seen how oil prices affect share prices. XOM’s business model requires continuous reinvestment in new projects to find additional oil and it is a capital-intensive business with high debt levels. Future projects may not be as profitable considering the current state of the oil industry. Profitability is also dependent on the price level of crude oil. As opposed to many of their competitors, Exxon Mobil decided to double down on its investment in oil exploration/production.

Dividend Growth Perspective

XOM has a history of successfully adapting to a challenging environment. Unfortunately, it has become more difficult than ever for XOM to sustain a capital-intensive business and increase its dividend at the same time. The increase in oil pricing may have given the oil giant a short-term break, but that will eventually end. Cash from operations has been funding dividends, capital investments, and debt reduction better in the last few quarters. Though rising oil prices and recovering demand bode well for the company in the short term, renewables are the future. The dividend is generous, but we don’t know when it will return to more aggressive growth.

Another pick in the energy sector could be…

If you are willing to look on the North side of the border, you'll find several great Canadian energy stocks trading on the NYSE. One of them is Canadian Natural Resources (CNQ), with 25 consecutive dividend increases.

In a world where the West Texas Intermediate (WTI) trades at $75+ per barrel, CNQ would be a terrific investment (here is your cue since the WTI is trading way over $70 lately!). It is sitting on a large asset of non-exploited oilsands and reaches its breakeven point at a WTI of $35. What cools our enthusiasm is the strange direction oil has taken along with the fact that oilsands are not exactly environmentally friendly. Many countries are looking at producing greener energy and electric cars. This could slow CNQ’s ambitions. However, CNQ is very well positioned to surf any oil booms. The stock price has more than doubled in value since the fall of 2020. It has previously invested very heavily, and it is now generating higher free cash flow because of past capital spending. CNQ exhibited resiliency in 2020, and this merits a star in their book!

The pandemic accelerated the inevitable: global shortage and high inflation

It was already in the books as an inverted demographic pyramid led to a lack of qualified workers. Too many just-in-time facilities were stopped for too long, creating delays everywhere. Billions of dollars injected by central banks inflated demand when there was no offer. It’s the perfect storm.

What is coming up this fall? More inflation and more interest rate hikes! What do you think the market will do?

I know I didn’t paint an optimistic picture here, but it’s the cold, harsh reality. It doesn’t mean you have to suffer your way through the fall. It doesn’t mean that you should endure losses and dividend cuts.

On Thursday, September 22nd, I’ll host a webinar on how to invest in a time of crisis. I’ll address the delicate situation of being a retiree (or soon to retire) in this crazy market.

Save your spot now (limited to 500 live attendees)

See you there!

Mike

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<![CDATA[3 High Yield Dividend Stocks To Buy This Fall That Pay More Than 4%]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/3-high-yield-dividend-stocks-buy-this-fall-pay-more-than-4https://www.thestreet.com/dividendstrategists/dividend-ideas/3-high-yield-dividend-stocks-buy-this-fall-pay-more-than-4Thu, 08 Sep 2022 13:10:06 GMTWe could see stock prices decline, offering investors the opportunity to add some high-yielding stocks to their portfolios.

With interest rates going up to stop inflation, what do you think will happen this fall to the stock markets? We could see stock prices decline, offering investors the opportunity to add some high-yielding stocks to their portfolios.

It's one thing to focus on high yield. It's another to make sure the dividend is safe. There is nothing safer than a dividend that has just been increased. I've selected three companies offering a yield above 4% that will also come with a dividend increase in the next twelve months. The following companies offer both high yield and dividend growth to their shareholders.

3 High Yield Dividend Stocks For The Fall

AbbVie (ABBV) 4.10%

AbbVie is a research-based biopharmaceutical company. The Company is engaged in research and development, manufacturing, commercialization and sale of medicines and therapies. AbbVie offers its products in various therapeutic categories including Immunology, Oncology, Aesthetics, Neuroscience products, Eye care and Women's health.

Investment Thesis

ABBV’s dependence on Humira, a tumor necrosis factor blocker that reduces the effects of inflammation, has been reduced over the past few years. Humira represented about 58% of profits in 2019, down to 36% in 2021. ABBV will lose Humira’s exclusivity in 2023. New drugs in the company’s immunology portfolio such as Skyrizi and Rinvoq are accelerating more aggressive growth. ABBV expects Rinvoq and Skyrizi to contribute over $15B in sales by 2025. ABBV’s growth is also fueled by its hematologic oncology portfolio, with growth of 8%. In addition, we see promising growth from its psoriasis and rheumatoid arthritis drugs. The company’s primary reason for acquiring Allergan was to diversify its revenue sources and find more diverse ways of extending its patents. The big pharma shows a great balance between growth and income and is part of our Dividend Rock Stars list.

Potential Risks

As Humira’s patent expiration (2023 for the U.S.) is on the horizon, we are reminded of the pivotal role of patents and competition in the industry. Patents allows players to reap the benefits of billions invested in R&D, and while ABBV may be one discovery away from making billions, the same goes for many of their competitors. For instance, competitor Pfizer could impact ABBV’s sales expectations. Now, ABBV must convince the market that its pipeline is worthy of their investment despite Humira’s patent expiration, and a few more quarters may be necessary for this. ABBV also increased its leverage through the acquisition of Allergan. Failures in the pipeline, litigation, or even integration complications with Allergan, are risks that ABBV could face in the future.

Dividend Growth Perspective

ABBV has been generous with its shareholders as of late. The company has successfully increased its dividend since 1973 (including Abbott’s history). Management has more than doubled its payout in the past 5 years, in addition to buying back shares. With a yield of 4.5%, it is a great candidate for any retirement portfolio. The most recent dividend increase announcement in Q4 2021 (+8.5%) demonstrates high confidence from management.

AbbVie (ABBV) Dividend Growth

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VF Corporation (VFC) 4.90%

V.F. Corporation is an apparel, footwear and accessories company. It owns a range of brands in the outerwear, footwear, apparel, backpacks, luggage, and accessories categories. Its brands include Vans, The North Face, Timberland, and Dickies. VFC has more than 45 consecutive years of dividend increases under its belt and it’s on its way to become a Dividend King.

Investment Thesis

Active brand portfolio management is key in a world where fashion evolves at a rapid pace and brand power means pricing power; VF Corporation got this right. In May 2019, VFC spun off its jean brands into Kontoor (KTB). VFC is now looking to sell its workwear brands to generate cash flow for new acquisitions. VFC has built a successful brand with incredible growth potential with Vans. We like their focus on e-commerce and branded stores to avoid dependence on third-party retailers. This enables VF to control its brands and its message. The company may face a difficult period, but we expect them to pursue further acquisitions at bargain prices. VFC is well positioned to take advantage of consumers’ shift to a healthier lifestyle through its Active and Outdoor segment. Similarly, with labor constraints and rotation, the Work segment might be key. Finally, the stock price has been in a downtrend since mid-2021, and we could be at a good entry point.

Potential Risks

Even though the company demonstrated its ability to manage its brand portfolio, the fashion industry evolves quickly. Thus far, management has successfully maintained its brand power and expanded margins, but this could turn quickly. While the company is reducing its dependence on third-party retailers, many large stores are selling VF products. The brick-and-mortar retail industry is currently not performing well, and this could affect VF sales down the road. VFC has seen sales reduced by double-digits across all their brands. This will be a difficult period, but VF manages strong brands that will survive as shareholders must remain patient.

Dividend Growth Perspective

We believe that the company is in a good position to keep its dividend streak alive. VF still has plenty of room for future dividend growth with a conservative payout ratio, and an investor can expect high single digit increases for the next 10 years. As the company navigates stormy seas, we welcomed VFC’s recent dividend increase from $0.48/share to $0.49/share, and more recently to $0.50. Although both are small increases, it is proof of management’s confidence and commitment in getting through the pandemic and becoming a stronger company. We expect another dividend increase towards the end of 2022.

VF Corporation (VFC) Dividend Growth

T. Rowe Price (TROW) 4.05%

T. Rowe Price Group, Inc. is a financial service holding company, which provides global investment management services through its subsidiaries to investors worldwide. Retirement accounts and variable annuity investments represent 2/3 of TROW’s assets under management (AUM). TROW has over 1.5 trillion dollars in assets under management.

Investment Thesis

TROW has been a model of performance since its IPO in 1986. T. Rowe Price has built its reputation over the past 3 decades and enjoys strong brand recognition. As one of the world’s largest asset managers, TROW also enjoys economies of scale and offers a wide variety of investment products. As 2/3 of its assets are housed in retirement accounts, TROW has one of the stickiest asset bases among its peers. In other words, investors don’t tend to move their retirement accounts (especially institutional) from place to place as they prefer long-term strategies. It’s ability to grow its AUM is impressive, performing even better than we expected.

Potential Risks

TROW has seen market crashes in the past, but bear markets always hurt. About 80% of TROW’s revenue comes from management fees based on a percentage of AUM, so the effect of market movements will be immediate on the stock price. The company has reduced its fees on some mutual funds. While this investment is still popular, the major trend is toward ETF’s. TROW will continue to change its fee structure to remain competitive, which could eventually hurt profitability. With the imminent threat of a recession, TROW has been on a downtrend for most of 2022. Tread carefully if you intend to enter a position as the economy’s outlook is gloomy.

Dividend Growth Perspective

Over the past 5 years, TROW has increased its dividend at a double-digit growth rate. Despite the special dividends paid, TROW has maintained its low payout ratio. There is no doubt the company will push its dividend increase streak to 36 next year. Shareholders can expect several more years of solid dividend growth. TROW shows a robust dividend triangle (EPS, revenues, and dividend growth). This is all very positive for TROW’s future through the upcoming difficult quarters for the financial services industry.

T. Rowe Price (TROW) Dividend Growth

The pandemic accelerated the inevitable: global shortage and high inflation

It was already in the books as an inverted demographic pyramid led to a lack of qualified workers. Too many just-in-time facilities were stopped for too long, creating delays everywhere. Billions of dollars injected by central banks inflated demand when there was no offer. It’s the perfect storm.

What is coming up this fall? More inflation and more interest rate hikes! What do you think the market will do?

I know I didn’t paint an optimistic picture here, but it’s the cold, harsh reality. It doesn’t mean you have to suffer your way through the fall. It doesn’t mean that you should endure losses and dividend cuts.

On Thursday, September 22nd, I’ll host a webinar on how to invest in a time of crisis. I’ll address the delicate situation of being a retiree (or soon to retire) in this crazy market.

Save your spot now (limited to 500 live attendees)

See you there!

Mike

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<![CDATA[3 Undervalued Stocks to Buy in September 2022]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/3-undervalued-stocks-buy-september-2022https://www.thestreet.com/dividendstrategists/dividend-ideas/3-undervalued-stocks-buy-september-2022Wed, 31 Aug 2022 13:00:00 GMTThe 2022 bear market has uncovered some intriguing high yield dividend stock opportunities.

We have seen the stock market trading at crazy valuations for many years. This year's correction brings some great opportunities for investors looking for good deals. I've identified three undervalued stocks that could be great addition to your portfolio.

BlackRock (BLK)

BlackRock

Dividend yield: 2.90%

Dividend growth since: 2010

P/E ratio: 17.82

Forward P/E ratio: 20.06

Sector: Financial Services

BlackRock is the largest asset manager in the world, with $8.487 trillion in AUM at the end of June 2022. The company is also the world's largest ETF manufacturer through its iShares ETF business division.

BlackRock Financials

Investment Thesis

BLK is a winner and will be a keeper for decades to come. BLK's net inflow of assets under management continues to increase quarter after quarter. BLK enjoys size and scale like no other asset manager. The company sees steady organic growth even for its higher fee-earnings equity products. In other words, there is always new money coming in. The company is a leader in the growing investment field of ETFs and has a strong relationship with several institutional customers. Institutional investors are more inclined to stay with their providers for several years. We believe BLK's strong position in passive investments and strong fund performance will attract assets at above industry-average rates over the next few years.

Potential Risks

Asset managers are obviously more likely to suffer in bear markets. Although BLK exhibited positive net inflows during Q1 2022, this might be short lived as the market crumbles. To add to this, fees earned on AUM temporarily decrease during market crashes. The company must find a way to increase its actively managed assets, as these encompass its most profitable products. The company's size may become a burden as it could become less agile. Finally, regulation could also be a concern with potential policy changes.

Dividend Growth Perspective

The company has shown an impressive dividend growth rate track record since 2010. Over the past 5 years, BLK has maintained an 11%+ annualized dividend growth rate. This year was no exception as BLK rewarded shareholders with an 18% dividend increase. What's more, the current payout and cash payout ratios are well under control. We expect a high single-digit dividend growth rate going forward, even if the payout ratio permits growth rates in the low teens. The company exhibits a robust dividend triangle, and shareholders can sleep well at night while holding this security in their portfolios.

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A.O. Smith (AOS)

A.O. Smith

Dividend yield: 1.90%

Dividend growth since: 2006

P/E ratio: 17.75

Forward P/E ratio: 16.55

Sector: Industrials

A. O. Smith Corporation is a provider of water heating and water treatment solutions. The company operates through two segments: North America and Rest of World.

A.O. Smith Financials

Investment Thesis

In addition to being a leader in its market, AOS has several growth vectors. It has used its strong North American position to expand to emerging markets where the demand for water heaters & boilers is growing. AOS also sells reverse osmosis water treatment products. Even as technology continues to evolve, reverse osmosis remains the most efficient and preferred way to treat heavy metals in water. China, India, and other water treatment segments represent 36% of sales and represent the company's fastest-growing opportunities. AOS has a strong balance sheet, with only 10% of its total capital comprised of debt at the end of 2021. We believe this, combined with solid free cash flow, gives AOS the financial flexibility to pursue M&A opportunities. The housing market is strong and should provide AOS with a stable and predictable cash flow. Finally, as the economy continues to recover, AOS should see an increase in demand from the commercial market as well. A.O. Smith is part of the Dividend Rockstar list.

Potential Risks

The company may face headwinds as the rise of raw material prices, such as steel, continues to affect its profitability. Margins are thin in the revenue segment outside of North America, exhibiting a difference of roughly 10% from North American margins. This has been a recurring problem in recent years, causing AOS' earnings not to grow as quickly as they have historically. While sales are now back in growth mode in Asia, we saw that tariffs adversely affected AOS' business. Finally, while AOS has enjoyed strong momentum since the second half of 2021, the stock price has pulled back to September 2021 levels. An investment in AOS could be subject to short-term fluctuations in the current inflationary environment.

Dividend Growth Perspective

AOS has increased its dividend over the past 14 consecutive years (since 2006). It exhibits great dividend growth but a low yield (~1.9%). The company is focused on R&D and growing its markets. With a payout ratio below 40%, the funds are not currently making their way to shareholders, as management deems that it can offer stronger share value appreciation than if funds were being paid out as dividends. After reviewing its growth vectors, we tend to agree. Nonetheless, AOS has increased its dividend by 8% for Q3 2021, and this company can be leveraged as a robust investment, even in financial downturns.

V.F. Corporation (VFC)

VF Corporation

Dividend yield: 4.50%

Dividend growth since: 1973

P.E. ratio: 16.11

Forward PE ratio: 13.55

Sector: Consumer Discretionary

V.F. Corporation is an apparel, footwear, and accessories company. It manages iconic brands such as Vans, The North Face, Timberland, and Dickies.

VF Corporation Financials

Investment Thesis

Active brand portfolio management is key in a world where fashion evolves at a rapid pace and brand power means pricing power; V.F. Corporation got this right. In May 2019, VFC spun off its jean brands into Kontoor (KTB). VFC is now looking to sell its workwear brands to generate cash flow for new acquisitions. VFC has built a successful brand with incredible growth potential with Vans. We like their focus on e-commerce and branded stores to avoid dependence on third-party retailers. This enables V.F. to control its brands and its message. The company may face a difficult period, but we expect them to pursue further acquisitions at bargain prices. VFC is well positioned to take advantage of consumers' shift to a healthier lifestyle through its Active and Outdoor segment. Similarly, the Work segment might be key with labor constraints and rotation. Finally, the stock price has been in a downtrend since mid-2021, and we could be at a good entry point.

Potential Risks

Even though the company demonstrated its ability to manage its brand portfolio, the fashion industry evolves quickly. Thus far, management has successfully maintained its brand power and expanded margins, but this could turn quickly. While the company is reducing its dependence on third-party retailers, many large stores are selling V.F. products. The brick-and-mortar retail industry is currently not performing well, and this could affect V.F. sales down the road. VFC has seen sales reduced by double-digits across all their brands. This will be a difficult period, but V.F. manages strong brands that will survive as shareholders must remain patient.

Dividend Growth Perspective

We believe that the company is in an excellent position to keep its dividend streak alive. V.F. still has plenty of room for future dividend growth with a conservative payout ratio, and an investor can expect high single-digit increases for the next ten years. As the company navigates stormy seas, we welcomed VFC's recent dividend increase from $0.48/share to $0.49/share and, more recently, to $0.50. Although both are small increases, it is proof of management's confidence and commitment in getting through the pandemic and becoming a stronger company. We expect another dividend increase towards the end of 2022.

Are you looking for more ideas?

Would you like to get some good deals? Would you like to find exciting companies with a long dividend growth history and not trading at crazy P.E. ratios? This video covers the 3 stocks from this article + two others!

Watch 5 U.S. Undervalued Stocks to Buy Now

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<![CDATA[7 Dividend Growth Stocks For July 2022]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-july-2022https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-july-2022Thu, 14 Jul 2022 14:53:39 GMTThese discounted dividend growth stocks have safe dividends, strong income and growth prospects, and performed well over the past five years.

In my monthly 7 Dividend Growth Stocks series, I present seven dividend growth stocks from Dividend Radar for further analysis and possible investment. I apply different screens every month to find a variety of candidates. For example, screening for stocks with higher yields will interest income investors, while screening for higher dividend growth rates will interest growth-oriented investors.

In case you missed previous articles in this series, here are links to them:

Last month, I picked the top dividend growth [DG] stock in each of the GICS sectors. I focused on DG stocks with safe dividends and strong income and growth prospects trading below my fair value estimates.

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For this article, I’m using the same screens, but I’m presenting the seven top-ranked stocks regardless of sector. To rank candidates, I use DVK Quality Snapshots and my ranking system.

Screening and Ranking

For this month’s article, I used the following screens:

  • Investment Grade stocks in Dividend Radar
  • Stocks with Very Safe or Safe Dividend Safety Scores
  • Stocks with 5-year trailing total returns [TTRs] of at least 10%
  • Stocks likely to deliver annualized returns of 8%
  • Stocks likely to have high 5-year YOCs after five years of ownership
  • Stocks that are discounted relative to my fair value estimates.

Dividend Radar is an automatically-generated spreadsheet of DG stocks, defined as stocks trading on US exchanges with dividend increase streaks of at least five years. I use DVK Quality Snapshots routinely to assess the quality of Dividend Radar, assigning quality scores out of 25 based on various quality metrics. I consider stocks with quality scores in the range of 15-25, Investment Grade stocks.

I use the Dividend Safety Scores of Simply Safe Dividends. The scoring system predicts dividend risk over a full economic cycle by analyzing the most important metrics for dividends.

Source: Simply Safe Dividends

Dividend Safety Scores have avoided 98% of dividend cuts and excelled during the pandemic. While 51% of stocks with Unsafe and Very Unsafe ratings at the start of 2020 went on to cut their dividends, only 10% and 4% of Very Safe and Safe-rated companies cut their dividends, respectively.

The Chowder Number [C#] sums up a stock's forward yield and its 5-year dividend growth rate. It is a growth-oriented metric measuring the likelihood that a DG stock will deliver annualized returns of 8% or more.

The 5-year Yield on Cost [YOC] is an income-oriented metric indicating what your YOC would be after buying a stock and holding it for five years, assuming the current 5-year dividend growth rate [DGR] is maintained. To calculate the 5-year YoC is easy:

  • 5-year YOC = Forward Yield × (1 + 5-year DGR)5

I screened for a 5-year YOC above 4%.

To determine the intrinsic value of a stock, I use a survey approach by collecting fair value estimates and target prices from several reliable online sources, including CFRA, Finbox, Morningstar, Portfolio Insight, and Simply Wall St. I also estimate fair value using a stock’s five-year average dividend yield. With as many as 11 available estimates, I ignore the lowest and highest, then average the mean and median of the remaining values to arrive at my fair value [FV] estimate. Averaging the mean (average) and median (middle value) helps adjust skewness in the surveyed estimates.

The latest Dividend Radar (dated July 1, 2022) contains 734 stocks. Of these:

  • 320 stocks are Investment Grade
  • 382 stocks have Very Safe or Safe Dividend Safety Scores
  • 288 stocks have 5-year trailing total returns [TTRs] of at least 10%
  • 304 stocks are likely to deliver annualized returns of 8%
  • 393 stocks are likely to have a 5-year YOC of at least 4% after five years of ownership
  • 638 stocks are discounted relative to my fair value estimates

Only 8 stocks passed all these screens!

I ranked the candidates by sorting their DVK Quality Scores in descending order and using tie-breaking metrics for stocks with the same quality score.

7 Top-Ranked Dividend Growth Stocks for July

Here are the top-ranked DG stocks that passed this month’s screens:

I own all of these stocks in my DivGro portfolio.

Below, I provide a table with key metrics of interest to DG investors:

  • Yrs: years of consecutive dividend increases
  • Adj Qual: DVK Quality Snapshots adjusted quality score
  • Fwd Yield: forward dividend yield for a recent share Price
  • 5-Avg Yield: 5-year average dividend yield
  • 5-DGR: 5-year compound annual growth rate of the dividend
  • 5-YOC: the projected yield on cost after five years of investment
  • C#: Chowder Number, a popular metric for screening dividend growth stocks
  • 5-TTR: 5-year compound trailing total returns (as of the latest quarter)
  • VL Safety Rank: Value Line's Safety Rank
  • VL Fin Stren: Value Line's Financial Strength ratings
  • MS Econ Moat: Morningstar's Economic Moat
  • S&P Cred Rating: S&P Global's Credit Ratings
  • SSD Divi Safety: Simply Safe Dividends' Dividend Safety Scores
  • Buy Below: my risk-adjusted buy below price (see below)
  • –Disc +Prem: discount or premium of the recent share Price to my Buy Below price
  • Price: recent share price

The Fwd Yield column is colored green if Fwd Yield ≥ 5-Avg Yield.

Key metrics of the 7 Top-Ranked Dividend Growth Stocks this month (includes data sourced from Dividend Radar).

My risk-adjusted Buy Below prices allow premium valuations for the highest-quality stocks but require discounted valuations for lower-quality stocks:

Let's now look at each stock in turn. All data and charts are courtesy of Portfolio-Insight.com.

Texas Instruments (TXN)

TXN designs, manufactures, and sells semiconductors to electronics designers and manufacturers globally. The company operates in two segments, Analog and Embedded Processing. It markets and sells semiconductor products through a direct sales force and through distributors, as well as through its website. TXN was founded in 1930 and is headquartered in Dallas, Texas.

TXN valuation and key metrics, as well as a performance comparison with SPY over the past decade

TXN is rated Excellent (quality score: 24) and has the highest 5-year dividend growth rate of this month’s candidates (18.9%). Portfolio Insight classifies TXN as a slow-growth stock with a 1-year upside of 18% and a 1-year target price of $184.

TXN non-GAAP EPS and dividends paid (TTM), with stock price overlay

The company’s non-GAAP payout ratio of 54% is a little high and I expect dividend increases will be more modest in the future unless the company manages to grow earnings faster.

Union Pacific (UNP)

Omaha, Nebraska-based UNP operates the largest public railroad in North America, with 32,000 miles of track linking 23 states in the western two-thirds of the United States. UNP hauls coal, industrial products, intermodal containers, agricultural goods, chemicals, and automotive products. UNP owns a quarter of the Mexican railroad Ferromex. The company was founded in 1862.

UNP valuation and key metrics, as well as a performance comparison with SPY over the past decade

UNP is rated Excellent (quality score: 24) and Portfolio Insight classifies the stock as a slow-growth stock with a 1-year upside of 17% and a 1-year target price of $246.

UNP non-GAAP EPS and dividends paid (TTM), with stock price overlay

The company’s non-GAAP payout ratio of 52% is a little high and I expect dividend increases will be more modest in the future unless the company manages to grow earnings faster.

Home Depot (HD)

Founded in 1978 and based in Atlanta, Georgia, HD is a home improvement retailer that sells an assortment of building materials, home improvement products, and lawn and garden products. HD provides installation, home maintenance, and professional service programs to do-it-yourself, do-it-for-me, and professional customers.

HD valuation and key metrics, as well as a performance comparison with SPY over the past decade

HD is rated Excellent (quality score: 24). Portfolio Insight classifies HD as a slow-growth stock with a 1-year upside of 18% and a 1-year target price of $338.

HD non-GAAP EPS and dividends paid (TTM), with stock price overlay

With a non-GAAP payout ratio of 49%, the company has ample room to continue paying and raising its dividend.

Blackrock (BLK)

BLK is an investment management company that provides a range of investment and risk management services to institutional and retail clients across the world. The company’s offerings include single and multi-asset class portfolios investing in equities, fixed income, alternatives, and money market instruments. BLK was founded in 1988 and is based in New York City.

BLK valuation and key metrics and a performance comparison with SPY over the past decade

BLK is rated Excellent (quality score: 23) and Portfolio Insight classifies the stock as a slow-growth stock with a 1-year upside of 18% and a 1-year target price of $713.

BLK non-GAAP EPS and dividends paid (TTM), with stock price overlay

The company’s non-GAAP payout ratio of 50% is a little high for asset managers, but there is still room to continue paying and raising its dividend.

Amgen (AMGN)

Based in Thousand Oaks, California, AMGN is a biotechnology company. The company discovers, develops, manufactures, and delivers human therapeutics worldwide. It offers products for the treatment of serious illnesses in the areas of oncology/hematology, cardiovascular disease, inflammation, bone health, nephrology, and neuroscience. AMGN was founded in 1980.

AMGN valuation and key metrics and a performance comparison with SPY over the past decade

AMGN is rated Excellent (quality score: 23). Portfolio Insight classifies COST as a slow-growth stock with a 1-year upside of 6% and a 1-year target price of $263.

AMGN non-GAAP EPS and dividends paid (TTM), with stock price overlay

AMGN’s non-GAAP payout ratio of 45% is a little high for biotech companies, but the company has some room to continue paying and raising its dividend.

T. Rowe Price (TROW)

Founded in 1937, TROW is a financial services holding company that provides global investment management services to individual and institutional investors in the sponsored T. Rowe Price mutual funds and other investment portfolios, as well as through variable annuity life insurance plans. TROW is based in Baltimore, Maryland.

TROW valuation and key metrics, as well as a performance comparison with SPY over the past decade

TROW is rated Fine (quality score: 22) and has the highest forward yield of this month’s candidates. Portfolio Insight classifies TROW as a hypergrowth stock with a 1-year upside of 19% and a 1-year target price of $134.

TROW non-GAAP EPS and dividends paid (TTM), with stock price overlay

The company’s non-GAAP payout ratio of 38% is a bit high for asset managers, but the company still has some room to continue paying and increasing its dividend.

Lowe's (LOW)

LOW is a home improvement retailer. The company offers a complete line of products for maintenance, repair, remodeling, and home decorating. It also offers installation services through independent contractors, as well as extended protection plans and repair services. LOW was founded in 1946 and is based in Mooresville, North Carolina.

LOW valuation and key metrics, as well as a performance comparison with SPY over the past decade

LOW is rated Fine (quality score: 22) and has the longest dividend increase of this month’s candidates (60 years). Portfolio Portfolio Insight classifies LOW as a hypergrowth stock with a 1-year upside of 55% and a 1-year target price of $279.

LOW non-GAAP EPS and dividends paid (TTM), with stock price overlay

The company has ample room to continue paying and raising its dividend, given its non-GAAP payout ratio of only 35%.

Concluding Remarks

In this article, I ranked high-performingdiscounted Investment Grade DG stocks with Very Safe or Safe dividends increase streaks and excellent income and growth prospects. I own all of these stocks in my DivGro portfolio. Not only are the stocks discounted to my fair value estimates, they also are discounted at least 13% to my risk-adjuseted Buy Below prices. So, overall, these are excellent candidates for consideration!

Here's a comparative analysis of an equal-weighted portfolio of this month's seven DG stocks:

Source: Finbox.com

From a price-performance perspective, the portfolio would have outperformed the S&P 500 over the last five years by a margin of 1.41-to-1. Finbox considers all of the stocks to be undervalued.

As always, I advise readers to do their due diligence before investing.

Thanks for reading, and take care, everybody!

Please follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

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<![CDATA[7 Dividend Growth Stocks For June 2022]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-for-june-2022https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-for-june-2022Mon, 13 Jun 2022 13:30:00 GMTThese Dividend Radar stocks increased their dividends during the Great Recession and performed exceptionally well over the past decade.

Welcome to another edition of my monthly 7 Dividend Growth Stocks series!

Every month, I select seven dividend growth stocks from my Dividend Radar watch list for further analysis and possible investment. I use different monthly screens to highlight various aspects of dividend growth [DG] investing.

In case you missed previous articles in this series, here are links to them:

To compile this month's candidates, I used Portfolio Insight's screening tool to find stocks with dividend increase streaks of at least 14 years and 10-year trailing total returns of at least 20%.

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The first screen eliminates stocks of companies that cut, suspended, or froze their dividends during the Great Recession. The second screen looks for stocks that have performed exceptionally well over the past decade. Total return accounts for price appreciation and dividend income and is annualized over the trailing period in question, in this case, ten years.

I ranked candidates that passed my screens using DVK Quality Snapshots and my ranking system.

Screening and Ranking

For this month’s article, I used the following screens:

  • Stocks in Dividend Radar
  • Stocks with dividend increase streaks of at least 14 years
  • Stocks with 10-year trailing total returns [TTRs] of at least 20%

The latest Dividend Radar (dated June 10, 2022) contains 738 stocks. Of these:

  • 250 stocks have dividend increase streaks of at least 14 years
  • 101 stocks have 10-year TTRs of 20% or higher

Only 31 stocks passed both these screens.

I ranked the 31 candidates by sorting their DVK Quality Scores in descending order and breaking ties using the following metrics, in turn:

7 Top-Ranked Dividend Growth Stocks for June

Here are the top-ranked DG stocks that passed this month’s screens:

I own all of these stocks in my DivGro portfolio.

Below, I provide a table with key metrics of interest to DG investors:

  • Yrs: years of consecutive dividend increases
  • Adj Qual: DVK Quality Snapshots adjusted quality score
  • Fwd Yield: forward dividend yield for a recent share Price
  • 5-Avg Yield: 5-year average dividend yield
  • 5-DGR: 5-year compound annual growth rate of the dividend
  • 5-YOC: the projected yield on cost after five years of investment
  • C#: Chowder Number, a popular metric for screening dividend growth stocks
  • 5-TTR: 5-year compound trailing total returns (as of the latest quarter)
  • VL Safety Rank: Value Line's Safety Rank
  • VL Fin Stren: Value Line's Financial Strength ratings
  • MS Econ Moat: Morningstar's Economic Moat
  • S&P Cred Rating: S&P Global's Credit Ratings
  • SSD Divi Safety: Simply Safe Dividends' Dividend Safety Scores
  • Buy Below: my risk-adjusted buy below price (see below)
  • –Disc +Prem: discount or premium of the recent share Price to my Buy Below price
  • Price: recent share price

The Fwd Yield column is colored green if Fwd Yield ≥ 5-Avg Yield.

Key metrics of the 7 Top-Ranked Dividend Growth Stocks this month (includes data sourced from Dividend Radar).

My risk-adjusted Buy Below prices allow premium valuations for the highest-quality stocks but require discounted valuations for lower-quality stocks:

To estimate fair value [FV], I survey fair value estimates and price targets from sources such as Portfolio Insight, Finbox, and Morningstar. I also estimate fair value using a stock’s five-year average dividend yield. With up to eleven estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my FV estimate.

Next, let's look at each stock in turn. All data and charts are courtesy of Portfolio-Insight.com.

Microsoft (MSFT)

Founded in 1975 and based in Redmond, Washington, MSFT is a technology company with worldwide operations. The company’s products include operating systems, cross-device productivity applications, server applications, productivity and business solutions applications, software development tools, video games, and online advertising. MSFT also designs, manufactures, and sells several hardware devices.

MSFT valuation and key metrics, as well as a performance comparison with SPY over the past decade

MSFT is rated Exceptional (quality score: 25) and has the highest 5-year TTR of this month’s candidates (38.1%). Portfolio Insight classifies MSFT as a hypergrowth stock with a 1-year upside of 19% and a 1-year target price of $300.

MSFT non-GAAP EPS and dividends paid (TTM), with stock price overlay

The company has ample room to continue paying and raising its dividend, given its non-GAAP payout ratio of only 31%.

Visa (V)

Headquartered in San Francisco, California, Visa operates as a payments technology company worldwide. The company facilitates commerce through the transfer of value and information among consumers, merchants, financial institutions, businesses, strategic partners, and government entities. Visa provides its services under the Visa, Visa Electron, Interlink, V PAY, and PLUS brands.

V valuation and key metrics and a performance comparison with SPY over the past decade

V is rated Exceptional (quality score: 25) and is discounted most of this month’s candidates (-21%). Portfolio Insight classifies V as a hypergrowth stock with a 1-year upside of 44% and a 1-year target price of $287.

V non-GAAP EPS and dividends paid (TTM), with stock price overlay

The company has ample room to continue paying and raising its dividend, given its non-GAAP payout ratio of only 25%.

Costco Wholesale (COST)

Founded in 1976 and based in Issaquah, Washington, COST operates more than 700 membership warehouses in the United States and internationally. The company offers branded and private-label products in a range of merchandise categories. COST also operates gas stations, pharmacies, food courts, optical dispensing centers, photo processing centers, and hearing-aid centers; and engages in the travel business.

COST valuation and key metrics and a performance comparison with SPY over the past decade

COST is rated Excellent (quality score: 24) and is the only stock of this month’s candidates that are not discounted to my Buy Below price. Portfolio Insight classifies COST as a hypergrowth stock with a 1-year upside of 12% and a 1-year target price of $518.

COST non-GAAP EPS and dividends paid (TTM), with stock price overlay

The company has ample room to continue paying and raising its dividend, given its non-GAAP payout ratio of only 32%.

Texas Instruments (TXN)

TXN designs, manufactures, and sells semiconductors to electronics designers and manufacturers globally. The company operates in two segments, Analog and Embedded Processing. It markets and sells semiconductor products through a direct sales force and through distributors, as well as through its website. TXN was founded in 1930 and is headquartered in Dallas, Texas.

TXN valuation and key metrics, as well as a performance comparison with SPY over the past decade

TXN is rated Excellent (quality score: 24) and has the highest yield and 5-year dividend growth rate of this month’s candidates (2.92% and 19.8%). Portfolio Insight classifies TXN as a slow-growth stock with a 1-year upside of 17% and a 1-year target price of $185.

TXN non-GAAP EPS and dividends paid (TTM), with stock price overlay

The company’s non-GAAP payout ratio of 54% is a little high and I expect dividend increases will be more modest in the future, unless the company manages to grow earnings faster.

Union Pacific (UNP)

Omaha, Nebraska-based UNP operates the largest public railroad in North America, with 32,000 miles of track linking 23 states in the western two-thirds of the United States. UNP hauls coal, industrial products, intermodal containers, agricultural goods, chemicals, and automotive products. UNP owns a quarter of the Mexican railroad Ferromex. The company was founded in 1862.

UNP valuation and key metrics, as well as a performance comparison with SPY over the past decade

UNP is rated Excellent (quality score: 24) and has the second highest yield of this month’s candidates (2.46%). Portfolio Insight classifies UNP as a slow-growth stock with a 1-year upside of 17% and a 1-year target price of $246.

UNP non-GAAP EPS and dividends paid (TTM), with stock price overlay

The company’s non-GAAP payout ratio of 52% is a little high and I expect dividend increases will be more modest in the future, unless the company manages to grow earnings faster.

NextEra Energy (NEE)

NEE generates, transmits, distributes, and sells electric power to retail and wholesale customers in North America. The company generates electricity through wind, solar, nuclear, and fossil fuel. It also develops, constructs, and operates assets focused on renewable energy generation. NEE was founded in 1984 and is based in Juno Beach, Florida.

NEE valuation and key metrics, as well as a performance comparison with SPY over the past decade

NEE is rated Fine (quality score: 22) and is the only Utilities sector stock of this month’s candidates. Portfolio Insight classifies NEE as a slow-growth stock with a 1-year upside of 1% and a 1-year target price of $77.

NEE non-GAAP EPS and dividends paid (TTM), with stock price overlay

The company’s non-GAAP payout ratio of 67% is low for Utilities, so NEE has ample room to continue paying and increasing its dividend.

Lowe's (LOW)

LOW is a home improvement retailer. The company offers a complete line of products for maintenance, repair, remodeling, and home decorating. It also offers installation services through independent contractors, as well as extended protection plans and repair services. LOW was founded in 1946 and is based in Mooresville, North Carolina.

LOW valuation and key metrics, as well as a performance comparison with SPY over the past decade

LOW is rated Fine (quality score: 22) and is discounted second most of this month’s candidates (-20%). Portfolio Portfolio Insight classifies LOW as a hypergrowth stock with a 1-year upside of 53% and a 1-year target price of $285.

LOW non-GAAP EPS and dividends paid (TTM), with stock price overlay

The company has ample room to continue paying and raising its dividend, given its non-GAAP payout ratio of only 35%.

Concluding Remarks

In this article, I ranked stocks with dividend increase streaks of at least 14 years and 10-year trailing total returns of at least 20%. Of the seven top-ranked stocks, five trade well below my risk-adjusted Buy Below prices. The exceptions, COST and NEE, trade near my Buy Below prices. If COST and NEE drop by 5-10%, they will offer great buy opportunities, too.

Here's a comparative analysis of an equal-weighted portfolio of this month's seven DG stocks:

Source: Finbox.com

From a price-performance perspective, the portfolio would have outperformed the S&P 500 over the last five years by a margin of 2.39-to-1. Finbox considers all but one of the stocks to be undervalued. Although not indicated, the exception is NEE. Note that only LOW and UNP have Betas above 1.00.

As always, I advise readers to do their due diligence before investing.

Thanks for reading, and take care, everybody!

Please follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

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<![CDATA[3 Discounted Dividend Aristocrats]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/3-discounted-dividend-aristocratshttps://www.thestreet.com/dividendstrategists/dividend-ideas/3-discounted-dividend-aristocratsMon, 06 Jun 2022 14:32:49 GMTThese high-quality, discounted dividend growth stocks have increased their dividend payouts every year for at least 25 years.

The annual rebalancing and subsequent changes to the S&P 500 Dividend Aristocrats Index have produced a new list of 64 Dividend Aristocrats. These elite companies in the S&P 500 have paid higher dividends every year for at least 25 consecutive years. S&P Dow Jones Indices maintains the index and updates it annually in January.

Recently, I ranked the 64 Dividend Aristocrats by quality scores according to DVK Quality Snapshots. Follow the link to download a spreadsheet with fundamental and added value data of all 64 Dividend Aristocrats, courtesy of Portfolio Insight.

This article looks at three Dividend Aristocrats trading well below my risk-adjusted Buy Below prices. Two stocks are rated Excellent with quality scores of 23 and 24 (out of 25), respectively, while the other stock is rated Fine with quality scores of 19. The three stocks are discounted by at least 16% relative to my Buy Below prices.

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Valuation

I use a survey approach to estimate fair value by collecting fair value estimates and price targets from several online sources, including Portfolio Insight, Morningstar, and Finbox. Additionally, I estimate fair value by dividing each stock’s annualized dividend by its historical 5-year average dividend yield. With as many as 11 available estimates per stock, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my fair value estimate. Averaging the mean (average) and median (middle value) helps to adjust for skewness in the surveyed estimates.

With my survey approach to estimating fair value, I can quickly determine reasonable fair value estimates for hundreds of stocks. Over time, I’ve gained confidence in this approach, which averages out sometimes widely different opinions about the fair value of a stock.

I now calculate and present Buy Below prices in my articles. These risk-adjusted prices allow premium valuations for the highest-quality stocks but require discounted valuations for lower-quality stocks, based on the following matrix:

My Buy Below prices recognize that the highest-quality stocks rarely trade at discounted valuations. As a dividend growth investor with a long-term investment horizon, I’m more interested in owning quality stocks than getting a bargain. In ten years, the price I paid for a stock will have almost no impact on my stock ownership, but the quality of the stock will likely determine if I even own that stock for ten years!

This article presents three high-quality Dividend Aristocrats trading well below my risk-adjusted Buy Below prices.

Dividend Aristocrats

The Dividend Aristocrats are S&P 500 stocks with 25 consecutive years of dividend increases.

To become a Dividend Aristocrat, companies must meet several additional criteria, which I list in my recent article ranking the Dividend Aristocrats. For example, there are market capitalization, liquidity, diversification criteria, and special rules governing spin-offs. Visit this page, scroll down, and click on "Methodology" under "Documents" to learn more.

The annual rebalancing and subsequent changes to the S&P 500 Dividend Aristocrats Index have produced a new list of 64 Dividend Aristocrats. Of these:

  • All but three have Investment Grade ratings based on their quality scores of 15-25,
  • More than 30 Investment Grade stocks are trading below my risk-adjusted Buy Below prices, and
  • 43 Investment Grade stocks have quality scores in the 19-25 range, truly high-quality stocks!

Below is a ranking chart showing the quality scores of Investment Grade Dividend Aristocrats:

Let’s consider the discounts to my risk-adjusted Buy Below prices of the higher-quality Dividend Aristocrats, which I colored green in the above chart. These stocks have quality scores of 19-25, which I rate as Exceptional (25), Excellent (23-24), and Fine (19-22):

The tickers of the stocks with the most significant discounts are SWK, MMM, and MDT. Let’s look at each of these stocks in turn.

Stanley Black & Decker (SWK)

Founded in 1843 and headquartered in New Britain, Connecticut, Stanley Black & Decker is engaged in the tools and storage, industrial, and security businesses worldwide. The company operates in three segments: Tools & Storage, Industrial, and Security. SWK was formerly known as The Stanley Works and changed its name to Stanley Black & Decker, Inc. in March 2010.

SWK is an Industrials Sector stock with a dividend increase streak of 55 years! This makes SWK a member of the even more exclusive Dividend Kings, which are companies that have increased their annual dividend payouts for 50 or more consecutive years!

SWK is rated Fine with a quality score of 19:

The stock yields 2.71% at $116.40 per share, a yield which is 51% higher than its trailing 5-year average yield of 1.80%:

Over the past ten years, SWK has underperformed the SPDR S&P 500 ETF (SPY), an ETF designed to track the companies in the S&P 500:

SWK returned 124% versus the SPY's 290%, a margin of only 0.43-to-1.

If we extend the time frame of comparison to the past 20 years, SWK also underperformed SPY, with total returns of 348% versus SPY's 487%, a somewhat better margin of 0.71-to-1.

SWK’s poor performance is due to a significant drop in the share price from $220 in May 2021 to about $116 today, or about 47%! Before that drop, SWK tracked the S&P 500’s performance quite well, and the stock outperformed SPY over the prior 20-year time frame.

The question is, what does a dividend growth investor get if they invest in SWK?

Here is a chart showing SWK’s dividend growth history through the end of 2021:

SWK is growing its dividend at a steady but decelerating rate. We can see this by dividing the 5-year dividend growth rate [DGR] by the 10-year counterpart: 5.69 ÷ 6.15 = 0.93. A ratio below 1.00 indicates deceleration. The last two increases were higher at 7.19% and 12.86%!

SWK's earnings are consistently growing, with an increase of 17.64% expected for FY 2023 after an anticipated drop of 6.10% in FY 2022:

I love to see steady earnings increases at rates equal to or exceeding the DGR, as with SWK. This gives me confidence that the company will continue to pay and periodically increase its dividend. For SWK, future increases of around 7% per year are likely.

SWK’s earnings payout ratio of 30% is “low for most companies,” according to Simply Safe Dividends:

Source: Simply Safe Dividends

This means SWK has plenty of room to continue paying and increasing its dividend.

Portfolio Insight’s FV is $168.08, with a 12-month target price of $159.79 (37% upside):

The P/E and Dividend Yield Fair Value charts indicate that SWK is trading well below the Undervalue Price.

My fair value [FV] estimate of SWK is $158, so I think the stock is trading at a discount of about 26%. My Buy Below price equals the FV estimate for stocks with a quality score of 19 rated Fine. Therefore, my Buy Below price of SWK is $158.

For reference, CFRA’s FV is $118, Morningstar’s FV is $157, Simply Wall St’s FV is $212, and Finbox.com’s FV is $250. That’s quite a range of valuations!

Disclosure: Long SWK

3M (MMM)

3M is a diversified technology company with worldwide operations. The company has leading positions in consumer and office; display and graphics; electronics and telecommunications; health care; industrial; safety, security, and protection services; transportation; and other businesses. MMM was founded in 1902 and is headquartered in St. Paul, Minnesota.

MMM is an Industrials Sector stock with a dividend increase streak of 64 years! In addition to being a Dividend Aristocrat, MMM is a member of the Dividend Kings!

MMM is rated Excellent with a quality score of 23:

The stock yields 3.99% at $149.29 per share, a yield which is 29% higher than its trailing 5-year average yield of 3.10%:

Over the past ten years, MMM has underperformed SPY:

MMM returned 139% versus the SPY's 290%, a margin of only 0.50-to-1.

If we extend the comparison time frame to the past 20 years, MMM also underperformed SPY, with total returns of 302% versus SPY's 481%, a somewhat better margin of 0.63-to-1.

MMM’s poor performance is due to a steady drop in the share price from $250 in January 2018 to about $149 today, or about 40%! Before that drop, MMM outperformed the S&P 500.

Here is a chart showing MMM’s dividend growth history through the end of 2021:

MMM is growing its dividend at a decelerating rate. We can see this by dividing the 5-year DGR by the 10-year counterpart: 5.92 ÷ 10.41 = 0.57. A ratio below 1.00 indicates deceleration. MMM’s last two increases were 1¢ per share.

MMM's earnings are consistently growing, with an increase of 17.64% expected for FY 2023 after an anticipated drop of 6.10% in FY 2022:

MMM’s earnings have recovered nicely following two poor years in FY 2019 and FY 2020 but still is below that achieved in FY 2018. Fortunately, the estimates for FY 2022 and FY 2023 look promising! Hopefully, MMM will return to more generous dividend increases in the future.

MMM’s earnings payout ratio of 59% is “low for most companies,” according to Simply Safe Dividends:

Source: Simply Safe Dividends

This means MMM has room to continue paying and increasing its dividend, though I expect the increases to be moderate.

Portfolio Insight’s FV of MMM is $197.49, with a 12-month target price of $192.17 (30% upside):

The P/E and Dividend Yield Fair Value charts indicate that MMM is trading well below the Undervalue Price.

My FV estimate of MMM is $180, so I think the stock is trading at a discount of about 17%. For stocks with a quality score of 23 rated Excellent, my Buy Below price is 5% above the FV estimate. Therefore, my Buy Below price of MMM is $189.

For reference, CFRA’s FV is $134, Morningstar’s FV is $186, Finbox.com’s FV is $207, and Simply Wall St’s FV is $277. Again that’s quite a range of valuations!

Disclosure: Long MMM

Medtronic plc (MDT)

Medtronic plc manufactures and sells device-based medical therapies to hospitals, physicians, clinicians, and patients worldwide. The company operates in four segments: Cardiac and Vascular Group, Minimally Invasive Therapies Group, Restorative Therapies Group, and Diabetes Group. MDT was founded in 1949 and is headquartered in Dublin, Ireland.

MDT is a Health Care Sector stock with a dividend increase streak of 45 years.

MDT is rated Excellent with a quality score of 24:

The stock yields 2.56% at $98.50 per share, a yield which is 19% higher than its trailing 5-year average yield of 2.15%:

Over the past ten years, MDT has underperformed SPY:

MDT returned 238% versus the SPY's 294%, a margin of 0.81-to-1.

If we extend the time frame of comparison to the past 20 years, MDT also underperformed SPY, with total returns of 210% versus SPY's 487%, a much poorer margin of 0.43-to-1.

MDT generally outperformed SPY until August 2021.

Here is a chart showing MDT’s dividend growth history through the end of 2021:

MDT is growing its dividend consistently, though at a somewhat decelerating rate. We can see this by dividing the 5-year DGR by the 10-year counterpart: 8.14 ÷ 10.20 = 0.82. A ratio below 1.00 indicates a deceleration of the DGR. The last two increases from MDT were 8.62% and 7.93%, both inflation-beating increases.

Overall, MDT's earnings are growing, but the company experienced challenges in FY 2019 and FY 2020, like many other companies. After those down years, MDT managed to increase earnings by 15.79%, and further increases are expected in FY 2023 and FY 2024:

MDT’s earnings payout ratio of 44% is “low for most companies,” according to Simply Safe Dividends:

Source: Simply Safe Dividends

This means MDT has plenty of room to continue paying and increasing its dividend.

Portfolio Insight’s FV of MDT is $117.27, with a 12-month target price of $114.78 (17% upside):

The P/E Fair Value chart suggests that MDT is trading within the fair value range. In contrast, the Dividend Yield Fair Value chart indicatest that MDT is trading well below the Undervalue Price.

My FV estimate of MDT is $117, so I think the stock is trading at a discount of about 16%. For stocks with a quality score of 24 rated Excellent, my Buy Below price is 5% above the FV estimate. Therefore, my Buy Below price of MDT is $123.

For reference, CFRA’s FV is $87, Finbox.com’s FV is $119, Simply Wall St’s FV is $128, and Morningstar’s FV is $129.

Disclosure: Long MDT

Concluding Remarks

This article presented three high-quality, discounted Dividend Aristocrats. The stocks trade at least 16% below my risk-adjusted Buy Below prices and offer attractive yields and reasonable dividend growth rates. All three have solid dividend track records, and SWK and MMM are Dividend Kings with more than 50 years of consecutive dividend increases! According to Simply Safe Dividends, SWK and MDT have Very Safe dividends, whereas MMM has a Safe dividend. Given the upside, it appears to be a good time for long-term dividend growth investors to invest in SWK, MMM, and MDT.

I always encourage readers to do their due diligence before buying any stocks I highlight.

Thanks for reading, and take care, everybody!

Please follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

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<![CDATA[7 Dividend Growth Stocks For May 2022]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-may-2022https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-may-2022Mon, 23 May 2022 14:16:14 GMTThese investment-grade Dividend Radar stocks would have doubled your investment in three years, based on their 5-year trailing total returns.

In my monthly 7 Dividend Growth Stocks series, I present seven dividend growth stocks from my Dividend Radar watch list for further analysis and possible investment. I use different screens every month to highlight specific elements of dividend growth [DG] investing. For example, income investors prefer stocks with higher yields, while growth-oriented investors favor higher DG rates.

To compile this month's candidates, I considered investment-grade stocks with a 5-year trailing total return [TTR] of at least 26%, which is the rate that would double an investment every three years. Dividend investors focusing on growth and total return will find some high-quality candidates worth consideration.

View the original article to see embedded media.

I ranked candidates that passed my screens using DVK Quality Snapshots and my ranking system.

In case you missed previous articles in this series, here are links to them:

Screening and Ranking

For this month’s article, I used the following screens:

  • Stocks in Dividend Radar
  • Investment Grade stocks (DVK Quality Scores of 15-25)
  • Stocks with a 5-year trailing total return [TTR] of at least 26%
  • Stocks trading below my risk-adjusted Buy Below prices (see below)

My risk-adjusted Buy Below prices allow premium valuations for the highest-quality stocks but require discounted valuations for lower-quality stocks:

I use a survey approach to estimate fair value [FV]. In addition to estimating fair value using a stock’s five-year average dividend yield, I collect fair value estimates and price targets from sources such as Portfolio Insight, Finbox, and Morningstar. With up to eleven estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my FV estimate.

The latest Dividend Radar (dated May 13, 2022) contains 743 stocks. Of these:

  • 326 stocks have DVK Quality Scores in the range of 15-25, considered Investment Grade
  • 64 stocks have a 5-year trailing total return of 26% or higher
  • 250 stocks trade below my Buy Below price

Only 16 stocks passed all my screens.

I ranked these candidates by sorting their DVK Quality Scores in descending order and breaking ties using the following metrics, in turn:

Note that I’ve implemented a slight change in calculating quality scores to reduce the outsized impact on a stock’s quality score with no Value Line [VL] coverage.

7 Top-Ranked Dividend Growth Stocks for May

Here are the top-ranked DG stocks that passed this month’s screens:

I own the four highlighted stocks in my DivGro portfolio.

Below, I provide a table with key metrics of interest to DG investors:

  • Yrs: years of consecutive dividend increases
  • Adj Qual: DVK Quality Snapshots adjusted quality score
  • Fwd Yield: forward dividend yield for a recent share Price
  • 5-Avg Yield: 5-year average dividend yield
  • 5-DGR: 5-year compound annual growth rate of the dividend
  • 5-YOC: the projected yield on cost after five years of investment
  • C#: Chowder Number, a popular metric for screening dividend growth stocks
  • 5-TTR: 5-year compound trailing total returns
  • VL Safety Rank: Value Line's Safety Rank
  • VL Fin Stren: Value Line's Financial Strength ratings
  • MS Econ Moat: Morningstar's Economic Moat
  • S&P Cred Rating: S&P Global's Credit Ratings
  • SSD Divi Safety: Simply Safe Dividends' Dividend Safety Scores
  • Buy Below: my risk-adjusted buy below price
  • –Disc +Prem: discount or premium of the recent share Price to my Buy Below price
  • Price: recent share price

The Fwd Yield column is colored green if Fwd Yield ≥ 5-Avg Yield.

Key metrics of the 7 Top-Ranked Dividend Growth Stocks this month (includes data sourced from Dividend Radar).

Next, let's look at each stock in turn. All data and charts are courtesy of Portfolio-Insight.com.

Microsoft (MSFT)

Founded in 1975 and based in Redmond, Washington, MSFT is a technology company with worldwide operations. The company’s products include operating systems, cross-device productivity applications, server applications, productivity and business solutions applications, software development tools, video games, and online advertising. MSFT also designs, manufactures, and sells several hardware devices.

MSFT valuation and key metrics, as well as a performance comparison with SPY over the past decade

MSFT is rated Exceptional (quality score: 25), and Portfolio Insight believes the stock has a 1-year upside of 19% with a 1-year target price of $303. MSFT has the highest 5-year TTR of this month’s candidates (38.1%).

MSFT non-GAAP EPS and dividends paid (TTM), with stock price overlay

MSFT’s 5-year dividend growth rate [DGR] is attractive at 9.5%. According to Simply Safe Dividends, the company has ample room to continue paying and raising its dividend, given a payout ratio considered to be “very low for most companies,” according to Simply Safe Dividends.

Costco Wholesale (COST)

Founded in 1976 and based in Issaquah, Washington, COST operates more than 700 membership warehouses in the United States and internationally. The company offers branded and private-label products in a range of merchandise categories. COST also operates gas stations, pharmacies, food courts, optical dispensing centers, photo processing centers, and hearing-aid centers; and engages in the travel business.

COST valuation and key metrics and a performance comparison with SPY over the past decade

COST is rated Excellent (quality score: 24), and Portfolio Insight indicates a 1-year upside of 18% is likely, given a 1-year target price of $508. COST is a Dividend Contender with an 18-year streak of dividend increases.

COST non-GAAP EPS and dividends paid (TTM), with stock price overlay

COST has a solid 5-year DGR of 11.9%. With a payout ratio considered “Very low for most companies,” investors can look forward to more great dividend increases in the future.

Mastercard (MA)

MA, a technology company, provides transaction processing and other payment-related products and services in the United States and internationally. The company offers payment solutions and services under the MasterCard, Maestro, and Cirrus brands. MA was founded in 1966 and is headquartered in Purchase, New York.

MA valuation and key metrics and a performance comparison with SPY over the past decade

MA is rated Excellent (quality score: 24), and Portfolio Insight shows a 1-year upside of 47% with a target price of $495. The stock has the lowest yield (0.51%) but the highest 5-year DGR (19.0%) of this month’s selections.

MA non-GAAP EPS and dividends paid (TTM), with stock price overlay

MA’s dividend growth is a model of consistency, and Simply Safe Dividends considers its payout ratio to be “very low for most companies.” The stock has an attractive total return outlook!

UnitedHealth (UNH)

Founded in 1974 and based in Minnetonka, Minnesota, UNH is a diversified health and well-being company with core capabilities in clinical expertise, advanced technology, and data and health information. The company provides medical benefits to customers in the United States and more than 125 countries.

UNH valuation and key metrics and a performance comparison with SPY over the past decade

UNH is rated Excellent (quality score: 23), and the stock has a 1-year upside of 11% (target price $524) according to Portfolio Insight. UNH has the highest yield (1.23%) of this month’s selections.

UNH non-GAAP EPS and dividends paid (TTM), with stock price overlay

UNH has an impressive dividend growth history and a payout ratio deemed “low for most companies,” according to Simply Safe Dividends. Accordingly, the company has plenty of room to continue paying and increasing its dividend.

Intuit (INTU)

INTU provides financial management and compliance products and services for consumers, small businesses, self-employed, and accounting professionals in the United States, Canada, and internationally. The company operates in three segments: Small Business & Self-Employed, Consumer, and Strategic Partner. INTU was founded in 1983 and is headquartered in Mountain View, California.

INTU valuation and key metrics and a performance comparison with SPY over the past decade

INTU is rated Fine (quality score: 22), and according to Portfolio Insight, the stock has a 1-year upside of 34% with a target price of $474.

INTU non-GAAP EPS and dividends paid (TTM), with stock price overlay

According to Simply Safe Dividends, INTU’s payout ratio is “very low for most companies,” meaning the company has plenty of room for generous dividend increases in the future.

Brown & Brown (BRO)

BRO markets and sells a range of insurance and reinsurance products and services, risk management, third-party administration, managed health care, and Medicare set-aside services and programs. Customers include businesses, public entities, individuals, trade, and professional associations. BRO was founded in 1939 and is headquartered in Daytona Beach, Florida.

BRO valuation and key metrics and a performance comparison with SPY over the past decade

BRO is rated Fine (quality score: 21), and Portfolio Insight believes the stock has a 1-year upside of 18% with a 1-year target price of $65.

BRO non-GAAP EPS and dividends paid (TTM), with stock price overlay

BRO is the only Dividend Champion in this month’s selections, with a dividend increase streak of 28 years. According to Simply Safe Dividends, BRO’s payout ratio is “very low for most companies.”

Applied Materials (AMAT)

AMAT provides manufacturing equipment, services, and software to the semiconductor, display, and related industries. It operates through three segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. The company operates in the United States, China, Korea, Taiwan, Japan, Southeast Asia, and Europe. AMAT was incorporated in 1967 and is headquartered in Santa Clara, California.

AMAT valuation and key metrics and a performance comparison with SPY over the past decade

AMAT is rated Fine (quality score: 21), and Portfolio Insight shows a 1-year upside of 43% (target price: $159). The stock has a modest 0.93% forward yield, but its 5-year DGR of 18.8% more than makes up for the low yield!

AMAT non-GAAP EPS and dividends paid (TTM), with stock price overlay

The company’s payout ratio is “Low for semiconductor firms,” and its dividend is deemed Very Safe. AMAT will likely continue to increase its dividend at a double-digit growth rate.

Concluding Remarks

This month, I screened for investment-grade stocks with a 5-year trailing total return [TTR] of at least 26%, which is the rate that would double an investment every three years. All the stocks trade below my risk-adjusted Buy Below price.

Dividend investors focusing on growth and total return will find some high-quality candidates worth consideration.

As always, I advise readers to do their due diligence before investing.

Thanks for reading, and take care, everybody!

Please follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

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<![CDATA[7 Dividend Growth Stocks For April 2022]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-april-2022https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-april-2022Tue, 12 Apr 2022 14:24:12 GMTThese Defensive Sector stocks in Dividend Radar are likely undervalued and trade below my risk-adjusted Buy Below prices. This month’s candidates should be interesting to value investors and risk-averse investors.

Every month, I present seven dividend growth stocks for further analysis and possible investment. I screen stocks in Dividend Radar using different screens every month, highlighting different aspects of dividend growth [DG] investing. For example, income investors prefer stocks with higher yields, while growth-oriented investors favor higher DG rates.

This month, I screened for undervalued stocks in the Defensive Sectors (Consumer Staples, Health Care, and Utilities). Additionally, these stocks trade below my risk-adjusted Buy Below prices. To adjust for risk, I require more significant discounts for stocks with lower quality scores.

I usually rank candidates that passed my screens using DVK Quality Snapshots and my ranking system. Before writing this article, I made a minor adjustment to how quality scores are calculated. I’ll explain the reason for this change below.

In case you missed previous articles in this series, here are links to them:

Screening and Ranking

For this month’s article, I used the following screens:

  • Stocks in Dividend Radar
  • Investment Grade stocks (DVK Quality Scores of 15-25)
  • Only stocks in the Consumer Staples, Health Care, and Utilities sectors
  • Stocks trading below my risk-adjusted Buy Below prices (see below)
  • Stocks whose forward dividend yield exceeds the 5-year average dividend yield

My risk-adjusted Buy Below prices allow premium valuations for the highest-quality stocks but require discounted valuations for lower-quality stocks:

To estimate fair value [FV], I collect fair value estimates and price targets from sources such as Portfolio Insight, Finbox, and Morningstar. Additionally, I estimate fair value using each stock’s five-year average dividend yield. With up to eleven estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my FV estimate.

The latest Dividend Radar (dated April 8, 2022) contains 749 stocks. There are 137 Defensive Sector stocks in Dividend Radar and 122 have DVK Quality Scores in the range of 15-25, considered Investment Grade. Of these, only 14 stocks trade below my Buy Below prices and have forward dividend yields that exceed their 5-year average dividend yields.

I ranked the candidates by sorting their DVK Quality Scores in descending order and breaking ties using the following metrics, in turn:

Before presenting the seven top-ranked candidates, let me note a small change I’ve made to how quality scores are calculated.

View the original article to see embedded media.

A Change to DVK Quality Snapshots

When first I learned about David van Knapp’s Quality Snapshots, I immediately liked its simplicity and decided to adopt it for managing my DivGro portfolio and for the articles I write about DG investing. The system is elegant and provides an effective way to assess the quality of DG stocks.

David and I have corresponded on ways to improve Quality Snapshots and we made small adjustments on occasion, but we have yet to find a solution for the outsized impact on a stock’s quality score if Value Line [VL] doesn’t cover it. Without VL coverage, a stock misses out on 10 of 25 points because VL contributes two quality factors to the scoring system: the VL Safety Rank worth 5 points and the VL Financial Strength worth 5 points.

Without VL coverage, it is nearly impossible for a stock to score the 15 points needed for Investment Grade status (stocks with quality scores in the range of 15-25 are considered Investment Grade stocks).

In fact, of more than 1,200 stocks in my Quality Snapshots spreadsheet, only one of 239 stocks not covered by VL scores 15 points! (By the way, that stock is Roche Holding AG (RHHBY)).

To address this shortcoming, I decided to change how quality scores are calculated when VL doesn’t cover a stock. In such case, I’m multiplying the stock's quality score by 23÷15 (and ignoring the decimal digits in the result).

For example, one of my long-term holdings in my DivGro portfolio is Main Street Capital Corporation (MAIN), a principal investment firm that provides long-term debt and equity capital to lower middle market companies and debt capital to middle market companies. MAIN is not covered by VL:

As a result, MAIN scores only 11 points (Narrow scoring 4, BBB- scoring 3, and 62 scoring 4). With the adjustment, MAIN scores 11×23÷15 = 16.867 or 16 points when ignoring the decimal digits in the result.

In effect, stocks without VL scores are not penalized as much as before, but they do get penalized a little because I’m still limiting the maximum score they can achieve to 23 points.

7 Top-Ranked Dividend Growth Stocks for April

Here are top-ranked DG stocks that passed this month’s screens:

I own the three highlighted stocks in my DivGro portfolio.

Below, I provide a table with key metrics of interest to DG investors:

  • Yrs: years of consecutive dividend increases
  • Adj Qual: DVK Quality Snapshots adjusted quality score
  • Fwd Yield: forward dividend yield for a recent share Price
  • 5-Avg Yield: 5-year average dividend yield
  • 5-DGR: 5-year compound annual growth rate of the dividend
  • 5-YOC: the projected yield on cost after five years of investment
  • C#: Chowder Number, a popular metric for screening dividend growth stocks
  • 5-TTR: 5-year compound trailing total returns
  • VL Safety Rank: Value Line's Safety Rank
  • VL Fin Stren: Value Line's Financial Strength ratings
  • MS Econ Moat: Morningstar's Economic Moat
  • S&P Cred Rating: S&P Global's Credit Ratings
  • SSD Divi Safety: Simply Safe Dividends' Dividend Safety Scores
  • Buy Below: my risk-adjusted buy below price
  • –Disc +Prem: discount or premium of the recent share Price to my Buy Below price
  • Price: recent share price

The Fwd Yield column is colored green if Fwd Yield ≥ 5-Avg Yield.

Key metrics of the 7 Top-Ranked Dividend Growth Stocks this month (includes data sourced from Dividend Radar).

Next, let's look at each stock in turn. All data and charts are courtesy of Portfolio-Insight.com.

Merck (MRK)

Founded in 1891 and headquartered in Kenilworth, New Jersey, MRK is a global health care company that offers health solutions through prescription medicines, vaccines, biologic therapies, and animal health products. MRK markets its products to drug wholesalers and retailers, hospitals, government entities and agencies, physicians, physician distributors, veterinarians, distributors, animal producers, and managed health care providers.

MRK valuation and key metrics, as well as a performance comparison with SPY over the past decade

MRK is rated Excellent (quality score: 24) and Portfolio Insight believes the stock has a 1-year upside of 13%. With its yield of 3.19% and a discount of 14% relative to my Buy Below price, I believe the stock is suitable for both income and value investors.

MRK non-GAAP EPS and dividends paid (TTM), with stock price overlay

MRK’s 5-year dividend growth rate [DGR] is attractive at 7.7% and the company has ample room to continue paying and raising its dividend, given a payout ratio considered to be “low for most companies”, according to Simply Safe Dividends.

Medtronic plc (MDT)

MDT manufactures and sells device-based medical therapies to hospitals, physicians, clinicians, and patients worldwide. The company operates in four segments: Cardiac and Vascular Group, Minimally Invasive Therapies Group, Restorative Therapies Group, and Diabetes Group. MDT was founded in 1949 and is headquartered in Dublin, Ireland.

MDT valuation and key metrics, as well as a performance comparison with SPY over the past decade

MDT is rated Excellent (quality score: 24) and Portfolio Insight indicates a 1-year upside of 8% is likely. MDT is a Dividend Champion with a 45-year dividend increase streak. Trading at a discount of 10% relative to my Buy Below price, the stock is suitable for value investors seeking a defensive position.

MDT non-GAAP EPS and dividends paid (TTM), with stock price overlay

MDT’s 5-year DGR of 8.8% is attractive and with a payout ratio considered “low for most companies”, investors can look forward to more generous dividend increases in the future.

Amgen (AMGN)

Based in Thousand Oaks, California, AMGN is a biotechnology company that discovers, develops, manufactures, and delivers human therapeutics worldwide. It offers products for the treatment of serious illnesses in the areas of oncology/hematology, cardiovascular disease, inflammation, bone health, nephrology, and neuroscience. AMGN was founded in 1980.

AMGN valuation and key metrics, as well as a performance comparison with SPY over the past decade

AMGN is rated Excellent (quality score: 23) and Portfolio Insight shows a 1-year upside of 5%. The stock’s yield of 3.09%, a 5-year DGR of 12%, and its discount of 12% relative to my Buy Below price, make the stock is suitable for income, growth, and value investors.

AMGN non-GAAP EPS and dividends paid (TTM), with stock price overlay

AMGN’s dividend growth is a model of consistency, though Simply Safe Dividends considers its payout ratio to be “edging high for biotechs”. Nevertheless, the stock is a solid defensive stock and an attractive total return outlook!

Abbott Laboratories (ABT)

ABT discovers, develops, manufactures, and sells health care products worldwide. The company also provides blood and flash glucose monitoring systems. The company operates in four segments: Established Pharmaceutical Products; Diagnostic Products; Nutritional Products; and Cardiovascular and Neuromodulation Products. ABT was founded in 1888 and is headquartered in Abbott Park, Illinois.

ABT valuation and key metrics, as well as a performance comparison with SPY over the past decade

ABT is rated Excellent (quality score: 23) and the stock has a 1-year downside of 7% according to Portfolio Insight. While ABT’s yield is on the low side (1.57%), its 5-year DGR of 11.7% is impressive! Moreover, ABT’s 5-year TTR of 23.8% is spectacular and the stock may be suitable for growth investors.

ABT non-GAAP EPS and dividends paid (TTM), with stock price overlay

Note that ABT spun off AbbVie (ABBV) in January 2013, hence the dip in ABT’s earnings and dividends in the above chart. ABT’s payout ratio is “low for most companies”, according to Simply Safe Dividends, so the company has plenty of room to continue paying and increasing its dividend.

J & J Snack Foods (JJSF)

JJSF manufactures, markets, and distributes various nutritional snack foods and beverages to food service and retail supermarkets in the United States, Mexico, and Canada. The company sells its products through a network of food brokers and independent sales distributors; and a direct sales force. JJSF was founded in 1971 and is based in Pennsauken, New Jersey.

JJSF valuation and key metrics, as well as a performance comparison with SPY over the past decade

JJSF is rated Fine (quality score: 22) and according to Portfolio Insight, the stock has a 1-year upside of 21%. Given its discount of 10% relative to my Buy Below price, the stock should be attractive to value-oriented dividend investors.

JJSF non-GAAP EPS and dividends paid (TTM), with stock price overlay

According to Simply Safe Dividends, JJSF’s payout ratio is “edging high for consumer staples”. As with many companies in this sector, the COVID-19 pandemic severely affected JJSF’s earnings, though it appears that a recovery is well underway!

Kimberly-Clark (KMB)

Using advanced technologies in natural and synthetic fibers, non-wovens, and absorbency, KMB manufactures a range of personal care, consumer tissue, and professional products. Brands include Huggies, Kleenex, Scott, and Cottonelle. The company sells its products directly to retail outlets and through e-commerce. KMB was founded in 1872 and is headquartered in Dallas, Texas.

KMB valuation and key metrics, as well as a performance comparison with SPY over the past decade

KMB is rated Fine (quality score: 21) and Portfolio Insight believes the stock has a 1-year upside of 8%. Of this month’s candidates, KMB offers the highest yield at 3.67%, making it suitable for both income investors seeking defensive exposure.

KMB non-GAAP EPS and dividends paid (TTM), with stock price overlay

KMB is a Dividend King, an elite group of stocks that have increased their dividend payouts every year for at least 50 years! While KBM’s 5-year DGR is modest at 4.2%, its dividend growth chart sure is a model of consistency! KMB’s payout ratio is “edging high for consumer staples”, according to Simply Safe Dividends.

Baxter International (BAX)

BAX develops and provides a portfolio of critical care, nutrition, renal, hospital, and surgical products in more than 100 countries. Its products are used in hospitals, kidney dialysis centers, nursing homes, rehabilitation centers, doctors' offices, and patients at home under physician supervision. Baxter International Inc. was founded in 1931 and is headquartered in Deerfield, Illinois.

BAX valuation and key metrics, as well as a performance comparison with SPY over the past decade

BAX is rated Fine (quality score: 21) and Portfolio Insight shows a 1-year upside of 36%. The stock yields a modest 1.42%, but its 5-year DGR of 16.6% more than compensates for that low yield! Add its discount of 16% relative to my Buy Below price, and BAX certainly shines for income and growth-oriented investors.

BAX non-GAAP EPS and dividends paid (TTM), with stock price overlay

In July 2015, BAX spun off its biotech business, impacting the company’s earnings and dividends (see the chart above). The company’s payout ratio is “very low for most companies” and its dividend is deemed Very Safe, so BAX likely will continue to increase its dividend at a double-digit growth rate.

Concluding Remarks

This month, I screened for undervalued stocks in the Defensive Sectors. Value investors should find some great opportunities here, as should income and growth-oriented dividend investors. All candidates have Beta’s well below 1.00, Very Safe or Safe Dividends, and attractive upside potential, to boot. 

As always, I advise readers to do their due diligence before investing.

Thanks for reading, and take care, everybody!

Please follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

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<![CDATA[2 New Dividend Aristocrats To Consider For Your Income Portfolio]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/2-new-dividend-aristocrats-for-income-portfoliohttps://www.thestreet.com/dividendstrategists/dividend-ideas/2-new-dividend-aristocrats-for-income-portfolioThu, 31 Mar 2022 15:24:32 GMTChurch & Dwight and Brown & Brown joined the elite list of long-term dividend payers earlier this year.

Today we shall be discussing the financials of two of the hottest blue-chip dividend stocks that recently came into the spotlight due to their fresh induction into the S&P 500 Dividend Aristocrats Index. So without further ado, let’s dive right into them!

Brown & Brown (NYSE: BRO)

Brown & Brown, Inc. along with its multiple subsidiaries provides a range of services revolving around insurance & reinsurance. Their main divisions include retail, national programs, and wholesale brokerage. The firm also provides risk management and managed health care consultancy services.

Headquartered in Daytona Beach, Florida the company has offices in more than 300 locations across the entire country. As one of the largest independent insurance brokerages in America, the company has deep roots in the industry and is definitely among the most stable and reliable companies in America.

Albeit the company provides its services to a large customer base ranging from large-scale businesses to small households, the company is best known for providing customized packages of insurance policies to specific small-scale businesses.

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Dividend History

Since the company is part of the Dividend Aristocrats list it goes without saying that the firm has a stellar history of rising dividends over the recent few decades. Like most firms they distribute quarterly dividends, so let’s take a look at their historical dividend history.

As shown by the graph in the middle, the firm has had overall rising dividend payouts over the past two decades. In the past decade alone, the firm has raised its dividends from $0.156 in 2010 to $0.38 in 2021, more than a 100% increase. It is noteworthy to mention that the firm also underwent a stock split in 2018.

As a potential investor you may be skeptical about the fluctuating dividend yields of the stock as shown in the chart at the bottom. The graph shows a declining yield especially during the most recent five years. That may seem like a big red flag, but let’s not jump to conclusions.

The company has been undergoing constant expansion and has been on somewhat of an acquisition spree lately. They recently entered into an agreement to acquire Global Risk Partners Limited which is scheduled to be executed by the third quarter of this year.

This news came just two weeks after announcing their acquisition of Orchid Insurance. As per the agreement, the transaction shall include the entire Managing General Underwriter (MGU), the wholesaling business, including its High-Net-Worth segment as well as Cross Cover Insurance Services.

Although the exact financials of these transactions have not been publicized yet, moves such as these reflect a strong balance sheet, a positive cash flow and a stable company health. And what’s more? This acquisition spree explains the declining dividend yield discussed above.

The profit a firm makes from its operations or the ‘Free Cash Flow (FCF)’ can essentially be utilized in one of two ways, either by giving out dividends to its common shareholders or by using that money for capital expenditures such as expansions or acquisitions. In this scenario, Brown & Brown is utilizing the major chunk of their FCF on the latter.

What that primarily does is leave behind crumbs for dividend payouts whereas the pie is used for making those expensive acquisitions. As a result the firm cannot increase its dividend payouts from a certain level whereas the stock price keeps soaring due to the constant good news of acquisitions essentially driving down the dividend yield of the stock.

Balance Sheet Health

Now let’s take a look at the balance sheet health of the stock.

Total Assets

The firm’s total assets have been rising steadily over the years and have risen considerably from $2.4B in 2010 to $9.629B in the last quarter of 2021.

In 2020 the total assets were $8.966B, a 17.63% increase from 2019.

In 2019 they were $7.623B, a 13.97% increase from 2018.

In 2018 they were $6.689B, a 16.37% increase from 2017.

Year by year the rise in revenues has been quite exemplary which supports the firm’s continuing ability of raising its dividends and its expansionary adventures.

Total Debt

When looking at total assets it’s imperative to take a look at the flip side: the total debt.

Brown & Brown’s total debt for the last quarter of 2021 was $5.522B, an 8.41% increase over the previous year. Albeit the total debt for the firm has been rising for many years, this 8.41% increase is actually a flattening of the curve as in the previous years the firm had been raising its total liabilities by much greater percentages (21.99% in 2020 & 15.85% in 2019, respectively).

Insurance brokerage firms in general take on a lot of debt. Hence, to better assess the total debt of Brown & Brown, let’s take a look at their Debt ratio. Brown & Brown’s debt ratio is currently about 0.58. The value seems high but when compared with the industry average of 0.72, it’s quite acceptable.

Cash on Hand

The firm’s cash on hand has seen a general upward trend over the years and has risen from about $0.4B in 2010 to $1.426B in the last quarter of 2021. There have been periods where cash at hand has fallen slightly but the consequent rises which have always been way higher have offset those losses by a stretch.

In 2018 the cash on hand for the firm was $0.778B, a 5.64% decline from 2017. However, in the consequent two years the firm’s cash on hand rose a staggering 23.84% and 32.08%, in 2019 & 2020, respectively.

Combined these metrics indicate a healthy balance sheet, which reflect a continuing ability for the firm to meet the demand for rising dividend payments in the near future.

Church & Dwight (NYSE: CHD)

Headquartered in New Jersey, Church & Dwight Co. is one of the leading manufacturers of household products in America. The company makes a range of household and personal care products which are divided into two main segments: Consumer Domestic and Consumer International.

The company operates through 12 of its key brands which include Arm & Hammer, Trojan and other renowned brands in the household and personal care niche. They rely on these brands to such an extent that 80% of their revenues are generated from the sale of products under these brands.

Dividend History

Similar to BRO, as part of the Dividend Aristocrats list Church & Dwight has been giving out dividends that have been consistently rising over the past few decades. Let’s take a look at their graph below:

As shown by the graph in the middle, the firm has generally increased its dividend payouts over the past two decades. In the past decade alone, the firm has raised its dividends from $0.48 in 2012 to $1.01 in 2021, more than a 100% increase over the holding period. Similar to BRO the firm also underwent a stock split in 2017.

Balance Sheet Health

Total Assets

The firm’s total assets have been rising steadily over the years and have risen considerably from $2.9B in 2010 to $7.9B in 2021.

In 2020 the total assets were $7.415B, an 11.37% increase from 2019.

In 2019 they were $6.657B, a 9.69% increase from 2018.

Year by year the firm has raised its revenues to an extent that has made giving out those rising dividend payments possible.

Total Debt

Church & Dwight’s total debt for the last quarter of 2021 was $3.868B, a 0.04% increase over the previous year. Albeit the total debt for the firm has been rising for many years, this 0.04% increase is actually a positive sign as it indicates successful efforts by the firm to reduce their uptake of debt.

In the previous years the firm had been raising its total liabilities at a greater rate (8.4% in 2020, 10.14% in 2019 & 10.35% in 2018, respectively).

Cash on Hand

The firm’s cash on hand has been quite volatile in the last decade, rising from $189M in 2010 to $497M in 2013 and after many fluctuations of similar extent it closed at $241M in 2021.

As you can see above, the cash and cash equivalents aspect of Church & Dwight’s balance sheet does not help us understand the rising dividends due to their volatile nature.

How These Stocks Could Be Appropriate For Income Investing Strategies

The main crux of income investing strategies is to create a stable regular passive income. Owing to basic human nature every investor strives to maximize this return but this goal and the success of this goal varies depending on the risk appetite of each investor.

Stable dividend paying stocks are a popular investment instrument utilized by investors indulged in income investing strategies as firstly they provide a nice risk to reward ratio that we’ve seen is acceptable to investors of differing levels of risk-averseness.

And secondly, as Simeon Hyman, global investment strategist at ProShares says: “Companies that consistently raise their dividend are likely to continue to do so. That’s the starting point.” The rising dividend payouts allows investors to obtain a return that competes with inflation.

What’s more is that dividend paying stocks help investors survive the turbulent waters caused by volatile and uncertain phases of the market when capital gains are negligible and short-selling too risky. So no matter the type of investor you are, having dividend stocks in your portfolio is almost always worth it.

Moving on to the stocks of our interest, Brown & Brown and Church & Dwight are companies that have relatively stable business operations, belong to industries that shall remain relevant for the foreseeable future and provide decent dividend returns. Both companies judged objectively seem appropriate for income investing strategies.

When compared with each other Brown & Brown seems like a more stable and healthy company than Church & Dwight. As despite the declining dividend yields, the amount of investments/ acquisitions the company has been making is bound to pay up in terms of both higher dividends and capital gains in the near future.

To conclude, being listed in the S&P 500 Dividend Aristocrats Index is a symbol of well-deserved distinction that both of these mature companies value dearly. This is especially true in this case as newly listed firms always strive hard to maintain this prestige.

So as an investor if you’re interested in income investing strategies, adding shares of Brown & Brown and Church & Dwight in your portfolio using the Dollar Cost Averaging (DCA) method could be a sensible decision.

Good luck!

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<![CDATA[7 Dividend Growth Stocks For March 2022]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-for-march-2022https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-for-march-2022Mon, 28 Mar 2022 16:37:17 GMTThese high-quality Dividend Radar stocks are undervalued and may deliver annualized returns of 8% or more, according to the Chowder Rule.

In my monthly 7 Dividend Growth Stocks series, I present seven dividend growth stocks from my Dividend Radar watch list for further analysis and possible investment. I use different screens every month to highlight specific elements of dividend growth [DG] investing.

To compile this month’s candidates, I screened for undervalued stocks with Chowder Numbers (C#’s) that indicate some likelihood of delivering annualized returns of 8% or higher. Value and growth-oriented dividend investors will find some high-quality candidates worth consideration.

I ranked candidates that passed my screens using DVK Quality Snapshots and my ranking system.

In case you missed previous articles in this series, here are links to them:

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Screening and Ranking

For this month’s article, I used the following screens:

  • High-quality stocks (DVK Quality Scores of 19-25)
  • Discounted by at least 3% relative to my fair value [FV] estimate
  • Stocks likely or somewhat likely to deliver annualized returns of at least 8%

I use a survey approach to estimate FV, collecting fair value estimates and price targets from several sources, including Portfolio Insight, Morningstar, and Finbox. I also estimate fair value using each stock’s five-year average dividend yield. With up to eleven estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my FV estimate.

The latest Dividend Radar (dated March 25, 2022) contains 750 stocks. Of these, 159 are high-quality DG stocks with quality scores in the range of 19-25. Moreover, 217 stocks yield at least 3% and 330 are discounted by at least 3% relative to my FV estimate. Furthermore, 517 are likely or somewhat likely to deliver annualized returns of at least 8%, according to the Chowder Rule (see below).

Only 35 stocks pass all three screens.

I ranked these candidates by sorting their DVK Quality Scores in descending order and breaking ties using the following metrics, in turn:

The Chowder Rule

The so-called Chowder Rule postulates that DG stocks with a certain mix of forward dividend yield and 5-year dividend growth rate [DGR] likely will deliver annualized returns of at least 8%.

Specifically, we determine the C# by adding a stock’s forward dividend yield to its 5-year DGR. Stocks likely will deliver annualized returns of at least 8% if the following conditions hold:

  • For stocks yielding less than 3%: C# ≥ 15
  • For stocks yielding at least 3%: C# ≥ 12
  • For utilities yielding at least 4%: C# ≥ 8

I use a somewhat nuanced version of the Chowder Rule, color-coding cells in my spreadsheets according to the likelihood of delivering annualized returns of at least 8%:

  • Green indicates stocks likely to deliver annualized returns of 8%
  • Yellow indicates stocks are somewhat likely to deliver annualized returns of 8%
  • Red indicates stocks are unlikely to deliver annualized returns of 8%

To differentiate between yellow and red candidates, I use the following C# thresholds:

  • For stocks yielding less than 3%: red < 10 ≤ yellow < 15 ≤ green
  • For stocks yielding at least 3%: red < 8 ≤ yellow < 12 ≤ green
  • For utilities yielding at least 4%: red < 5 ≤ yellow < 5 ≤ green

For this month’s article, I allowed only green and yellow C#’s.

7 Top-Ranked Dividend Growth Stocks for March

Here are top-ranked dividend growth stocks that passed this month’s screens:

I own all of these stocks in my DivGro portfolio.

Below, I provide a table with key metrics of interest to dividend growth investors:

The Fwd Yield column is colored green if Fwd Yield ≥ 5-Avg Yield.

Key metrics and fair value estimates of the Top 7 Dividend Growth Stocks (includes data sourced from Dividend Radar).

Next, let's look at each stock in turn. All data and charts are courtesy of Portfolio-Insight.com.

Note that the valuations below from Portfolio Insight differ from my risk-adjusted Buy Below prices because I allow premium valuations for the highest-quality stocks but require discounted valuations for lower-quality stocks.

Visa Inc (V)

Headquartered in San Francisco, California, V operates as a payments technology company worldwide. The company facilitates commerce through the transfer of value and information among consumers, merchants, financial institutions, businesses, strategic partners, and government entities. V provides its services under the Visa, Visa Electron, Interlink, V PAY, and PLUS brands.

V valuation and key metrics, as well as a performance comparison with SPY over the past decade
V non-GAAP EPS and dividends paid (TTM), with stock price overlay

V is rated Exceptional (quality score: 25) and its payout ratio is “very low for most companies”, according to Simply Safe Dividends. According to Portfolio Insight, V has a 1-year upside of 35%. Given its discount of 15% relative to my Buy Below price, I believe the stock is suitable for both value and growth-oriented dividend investors.

Merck & Co, Inc (MRK)

Founded in 1891 and headquartered in Kenilworth, New Jersey, MRK is a global health care company that offers health solutions through prescription medicines, vaccines, biologic therapies, and animal health products. MRK markets its products to drug wholesalers and retailers, hospitals, government entities and agencies, physicians, physician distributors, veterinarians, distributors, animal producers, and managed health care providers.

MRK valuation and key metrics, as well as a performance comparison with SPY over the past decade
MRK non-GAAP EPS and dividends paid (TTM), with stock price overlay

MRK is rated Excellent (quality score: 23-24) and its payout ratio is “low for most companies”, according to Simply Safe Dividends. According to Portfolio Insight, MRK has a 1-year upside of 17%. MRK’s discount of 17% relative and forward yield of 3.39% make the stock suitable for value and income-oriented dividend investors.

Mastercard Incorporated (MA)

MA, a technology company, provides transaction processing and other payment-related products and services in the United States and internationally. The company offers payment solutions and services under the MasterCard, Maestro, and Cirrus brands. MA was founded in 1966 and is headquartered in Purchase, New York.

MA valuation and key metrics, as well as a performance comparison with SPY over the past decade
MA non-GAAP EPS and dividends paid (TTM), with stock price overlay

MA is rated Excellent (quality score: 23-24) and its payout ratio is “very low for most companies”, according to Simply Safe Dividends. According to Portfolio Insight, MA has a 1-year upside of 42%. Given its discount of 10% relative to my Buy Below price, the stock should be attractive to both value and growth-oriented dividend investors.

Medtronic plc (MDT)

MDT manufactures and sells device-based medical therapies to hospitals, physicians, clinicians, and patients worldwide. The company operates in four segments: Cardiac and Vascular Group, Minimally Invasive Therapies Group, Restorative Therapies Group, and Diabetes Group. MDT was founded in 1949 and is headquartered in Dublin, Ireland.

MDT valuation and key metrics, as well as a performance comparison with SPY over the past decade
MDT non-GAAP EPS and dividends paid (TTM), with stock price overlay

MDT is rated Excellent (quality score: 23-24) and its payout ratio is “low for most companies”, according to Simply Safe Dividends. According to Portfolio Insight, MDT has a 1-year upside of 10%. Given its discount of 13% relative to my Buy Below price, the stock is suitable for value-oriented dividend investors.

BlackRock, Inc (BLK)

BLK is an investment management company that provides a range of investment and risk management services to institutional and retail clients across the world. The company’s offerings include single and multi-asset class portfolios investing in equities, fixed income, alternatives, and money market instruments. BLK was founded in 1988 and is based in New York City.

BLK valuation and key metrics, as well as a performance comparison with SPY over the past decade
BLK non-GAAP EPS and dividends paid (TTM), with stock price overlay

BLK is rated Excellent (quality score: 23-24) and its payout ratio is “edging high for asset managers”, according to Simply Safe Dividends. According to Portfolio Insight, BLK has a 1-year upside of 8%. Given its discount of 11% relative to my Buy Below price, the stock should be attractive to value-oriented dividend investors.

Air Products and Chemicals, Inc (APD)

Founded in 1940 and headquartered in Allentown, Pennsylvania, APD produces atmospheric gases (such as oxygen and nitrogen), process gases (such as hydrogen and helium), and specialty gases, as well as the equipment for the production and processing of gases. APD also provides semiconductor materials, refinery hydrogen, natural gas liquefaction, and advanced coatings and adhesives.

APD valuation and key metrics, as well as a performance comparison with SPY over the past decade
APD non-GAAP EPS and dividends paid (TTM), with stock price overlay

APD is rated Excellent (quality score: 23-24) and its payout ratio is “edging high for most companies”, according to Simply Safe Dividends. According to Portfolio Insight, APD has a 1-year upside of 10%. With a discount of 13% relative to my Buy Below price, I think the stock is suitable for value-oriented dividend investors.

Comcast (CMCSA)

Founded in 1963 and headquartered in Philadelphia, Pennsylvania, CMCSA is a global media and technology company. The company operates through Cable Communications, Cable Networks, Broadcast Television, Filmed Entertainment, Theme Parks, and Sky segments. CMCSA delivers broadband, wireless, and video connectivity; creates, distributes, and streams entertainment, sports, and news; and operates theme parks and resorts.

CMCSA valuation and key metrics, as well as a performance comparison with SPY over the past decade
CMCSA non-GAAP EPS and dividends paid (TTM), with stock price overlay

CMCSA is rated Excellent (quality score: 23-24) and its payout ratio is “low for most companies”, according to Simply Safe Dividends. CMCSA has a 1-year upside of 20%, according to Portfolio Insight. Moreover, given that CMCSA trades 24% below my Buy Below price, I think the stock is suitable for growth and value-oriented dividend investors.

Concluding Remarks

This month, I screened To compile this month’s candidates, I screened for undervalued stocks with Chowder Numbers (C#’s) that indicate some likelihood of delivering annualized returns of 8% or higher. Value and growth-oriented dividend investors will find some high-quality candidates worth consideration.

As mentioned earlier, I’m long all of this month’s candidates. Based on my dynamic and flexible system for determining DivGro target weights, three positions are somewhat underweight, APD, MDT, and CMCSA:

Although my V and BLK positions are somewhat overweight, I don't like trimming stocks to achieve ideal target weights. There are tax implications to selling winning positions, so my strategy is to invest in underweight positions (rather than trim overweight positions) and slowly move my portfolio towards my ideal target weights.

All of this month’s stocks are discounted by at least 10% to my Buy Below prices, making them suitable for value-oriented dividend investors. With 1-year upsides of 20% or above, CMCSA, MA, and V should be attractive to growth-oriented dividend investors. Finally, only one stock yields more than 3%, MRK, which should make the stock an interesting candidate for income investors.

As always, I advise readers to do their due diligence before investing.

Thanks for reading and take care, everybody!

Please follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

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Also read:

7 Dividend Growth Stocks For February 2022

Top 7 Dividend Growth Stocks Picks For 2022

8 Best Defensive Dividend Growth Stocks

4 High Yield Closed-End Funds For Your Income Portfolio

2 Dividend Stocks On My Buy List

Focusing On Income, Too Many Stocks & Wrong Valuation: More Mistakes You Could Be Making

18 Dividend Stocks To Consider For The Next Decade

Hybrid Funds To Complement High Yield Portfolios

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<![CDATA[ExxonMobil: Don't Fill Up Your Tank Just Yet]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/exxonmobil-dont-fill-up-your-tank-just-yethttps://www.thestreet.com/dividendstrategists/dividend-ideas/exxonmobil-dont-fill-up-your-tank-just-yetThu, 24 Feb 2022 16:52:58 GMTThe high dividend yield is attractive, but not necessarily safe.

Exxon Mobil Corporation (XOM) explores for and produces crude oil and natural gas in the United States and internationally. The company is also involved in the manufacture, trade, transport, and sale of crude oil, natural gas, petroleum products, petrochemicals, and other specialty products; and manufactures and sells petrochemicals, including olefins, polyolefins, aromatics, and various other petrochemicals.

5 Key Points:

- Good dividend yield, but not safe

- We can’t see any positive future plans

- Small overall return on my money

- Significant insider selling over the past months

Current Position & Past Performance

To understand the chart of ExxonMobil, I have to explain a few things about the company and how it functions. It focuses primarily on the upstream and downstream markets. The upstream market is when oil and gas get extracted from the ground, downstream when they refine it and they sell it at gas stations and things like that. ExxonMobil was really good in the upstream market.

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Of course, oil prices drive the company's stock price. One of the first things that comes to my mind when I look at the chart is that XOM is a dividend stock.

ExxonMobil has had a total return of 254% over the last 20 years. Although the current price is right now under the orange line, which represents the margin of the safety line, I’m concerned about the recent price gains that happened over the last few months. Oil prices have risen substantially and I feel it’s just a matter of time before some event or new regulation will pull the price down again. Since COVID, the chart is very volatile (more on that in the news sector).

As Benjamin Graham teaches in his book, the P/E ratio for a company that has only a modest growth potential should not have a P/E higher than 25. XOM is great from this point of view as the current P/E is 11.6.

Taking another look at the past performance. Comparing the stock performance with the S&P 500, XOM has trailed the index by roughly 200% in total over the past 20 years.

Dividend Outlook

Exxon pays a juicy 4.55% dividend yield right now. They have paid a dividend (although not necessarily grown it) for 40 consecutive years. The payout ratio has been volatile lately. Since 2013, it has been above 75%, which is my borderline for a good payout ratio. When it stays under 75%, it says to me that the company is capable of paying out dividends safely and I can trust them as a long-term investment.

Share buybacks can be a silent killer. If a company buys back shares and your position grows, you will have a bigger slice of the cake. If they are issuing shares, your proportion of the company will be smaller. Unfortunately, XOM has been issuing shares every single year.

Debt

The long-term debt to capital ratio isn’t a thing to worry about. It is only 20.1%, which is considered very good. XOM's debt is well covered by operating cash flow. The debt to equity ratio has increased from 23.9% to 33.8% over the past 5 years, but is still manageable.

News About ExxonMobil

- Experts say that companies like ExxonMobil need to think ahead, as legislators around the world call for change. Decisions made today could affect wells that will pump many years later.

- Experts say ExxonMobil will pump the biggest amount of oil in the next 3 years. It comes with a lot of risks. Assets like untapped fossil fuel reserves could suddenly become liabilities. One word that can describe the future of the oil and gas sectors is volatility. There will be more and more restrictive policies to limit the burning of fossil fuels and emissions.

- In the past three months, significant shares were sold by 5 individuals and 1 in the company itself. Altogether, this consists of over $100m.

Forecast & Future Growth

Based on analyst estimates, the forecasted future earnings growth rate is 12%. I want to quickly mention the financials. Except for 2019 and 2020, revenue was growing every year.

Enterprise Value & Intrinsic Value

P/E ratio tends to be a bit too volatile, so I like to look at the enterprise value, the intrinsic value and the DCF model.

ExxonMobil market cap: $328b

ExxonMobil enterprise value: $380b

I took numbers from Google Finance, Yahoo Finance and Macrotrends to come up with these results. If I compare them with the current market cap and the enterprise value, both of the spreadsheets show that the current stock price is slightly undervalued.

Fair Value

I use the most widely accepted method to calculate the fair value of a company, which is the discounted cash flow (DCF) model. It is based on the premise that the fair value of a company is the total value of its future free cash flows discounted back to today's prices. I use analysts' estimates of cash flows and assume the company grows at a stable rate into perpetuity.

(Total Equity Value = Present value of next 10 years cash flows + Terminal Value = $154,166 + $186,970 = $341,136

Equity Value per Share (USD) = Total Value / Shares Outstanding = $341,136 / 4,239 = $80.48)

Undervalued by 3.9%. The current fair value is $80.48.

Risks & Overall Takeaway

I have a neutral view on ExxonMobil.

The bearish outlook for Exxon is dependent on where oil goes from here. If oil should continue to rise, it is likely to drive Exxon's revenue and earnings estimates and the stock higher. Given geopolitical tensions, oil prices may continue to surge. However, given the massive surge in oil prices, the stock, and technical trends, current prices may be at a place for Exxon to see a pullback, even if only over the short-term. Everything tells me that it isn’t a buy in my opinion.

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<![CDATA[Royal Gold: Undervalued By 27%; 20-Year Dividend Growth Streak]]>https://www.thestreet.com/dividendstrategists/stock-analysis/royal-gold-undervalued-by-27-20-year-dividend-growth-streakhttps://www.thestreet.com/dividendstrategists/stock-analysis/royal-gold-undervalued-by-27-20-year-dividend-growth-streakThu, 17 Feb 2022 16:52:55 GMTGold miners have been rallying and Royal Gold could benefit from the value in this space.

Royal Gold (RGLD), together with its subsidiaries, acquires and manages precious metal streams, royalties and related interests. It focuses on acquiring stream and royalty interests or financing projects that are in the production or development stage in exchange for stream or royalty interests, which primarily consist of gold, silver, copper, nickel, zinc, lead and cobalt. I consider it to be one of the more popular gold mining stocks.

Current Situation & Past Performance

I call the orange line on the chart below "the good margin of safety” line. Under this line, I consider a stock to be potentially undervalued. RGLD has consistently traded at a very high multiple, which is why sometimes it's better to look at EBITDA. EBITDA relative to the P/E ratio looks very attractive and suggests that the company is more stable.

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The forward P/E ratio of 26.32 is a little on the high side. I'd prefer to see it under 25.

In the last 20 years, the total annual rate of return was 18%. The price, however, was very volatile, so it would likely be better to consider a long-term buy-and-hold period of at least 10 years.

Annual revenue growth has been solid. Since 2015, total revenues have more than doubled.

Dividend Outlook

Royal Gold’s current dividend yield is only 1.28%, which is on the lower end, but dividend quality is high and the payout is safe. Historically, there was a period in the mid-2010s where the payout ratio was over 75%, but mostly has been below 50%, including its current payout ratio of 32%. This is a very healthy number and it tells me that the company can manage its dividend payouts.

The yield is small but how about the growth of the dividend? RGLD has paid a dividend since 2002 and has been growing it for 20 consecutive years. The 5-year dividend growth rate has been 10% annually.

Share buybacks can be a good thing, but share issuances can be a silent killer for investors. If the company increases the number of shares outstanding, it can dilute existing share value. Unfortunately, RGLD has been issuing shares regularly. This has mostly occurred in order to fund capital expenditures, but not because of dividend obligations.

If the price goes lower and you can capture a forward-looking 1.5% yield, investors should consider buying.

Forecasting Future Growth

The future does look good for the company and expectations are that earnings will continue growing. Based on 11 analysts, the estimated future earnings growth rate is 15.51% yearly.

Fair Value

I use the most widely accepted method to calculate the fair value of a company - the discounted cash flow (DCF) model. It is based on the premise that the fair value of a company is the total value of its future cash flows discounted back to today's prices. I use analysts' estimates of cash flows and assume the company grows at a stable rate into perpetuity.

Total Equity Value = Present value of next 10 years cash flows + Terminal Value = $3,309 + $6,576 = $9,885

Equity Value per Share (USD) = Total value / Shares Outstanding = $9,885 / 66 = $150.61

That would put the current fair value of RGLD at $150.61. The current share price would be undervalued by 27.6%.

Risks & Overall Takeaway

Investing in gold miners could present a better opportunity than investing directly in physical gold. The price action in the short-term can be volatile, but the long-term investment prospects are more attractive. RGLD's yield is comparatively small, but it's safe and growing.

From the standpoint of financial health, EBITDA looks attractive, but the valuation of the stock using the P/E ratio suggests it looks expensive to buy right now. The relative value looks favorable, but there may be better entry points.

Competitors in the sector: Kinross (KGC), B2Gold (BTG)

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<![CDATA[7 Dividend Growth Stocks For February 2022]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-for-february-2022https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-for-february-2022Thu, 03 Feb 2022 16:31:59 GMTThese high-yielding Dividend Radar stocks are undervalued, yield at least 4%, and have 5-year dividend growth rates of 6% or higher.

Welcome to another edition of my monthly 7 Dividend Growth Stocks series! Every month, I present seven dividend growth stocks from my Dividend Radar watch list for further analysis and possible investment. I use different screens every month to highlight specific elements of dividend growth [DG] investing. This month, income investors will find some high-yielding candidates worth consideration.

I screened for discounted DG stocks in Dividend Radar yielding at least 4% and a 5-year dividend growth rate of 6% or higher. I also screened for DG stocks with dividend increase streaks of 10 or more years.

View the original article to see embedded media.

As usual, I employed DVK Quality Snapshots and my ranking system to rank candidates and present the seven top-ranked stocks in this article.

In case you missed previous articles in this series, here are links to them:

Screening and Ranking

For this month’s article, I used the following screens:

  • Investment Grade stocks (DVK Quality Scores of 15-25)
  • Dividend Increase Streak of at least ten years
  • Forward Dividend Yield is at least 4.0%
  • 5-Year Dividend Growth Rate is at least 6.0%
  • Discounted relative to my fair value [FV] estimate

To estimate FV, I collect fair value estimates and price targets from several sources, including Portfolio Insight, Finbox, and Morningstar. Additionally, I estimate fair value using each stock’s five-year average dividend yield. With up to eleven estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my FV estimate.

The latest Dividend Radar (dated January 28, 2022) contains 717 DG stocks. Of these, 338 stocks are Investment Grade, 268 stocks have dividend increase streaks of ten or more years, 80 stocks yield at least 4%, 524 stocks have 5-year dividend growth rates of 6% or higher, and ​​407 stocks are discounted. Exactly seven stocks pass all four screens.

I ranked these candidates by sorting their DVK Quality Scores in descending order and breaking ties using my usual tie-breaking metrics:

7 Top-Ranked Dividend Growth Stocks for February

Here are top-ranked dividend growth stocks that passed this month’s screens:

I own three of these stocks in my DivGro portfolio.

Below, I provide a table with key metrics of interest to dividend growth investors:

My risk-adjusted Buy Below prices allow premium valuations for the highest-quality stocks but require discounted valuations for lower-quality stocks.

The Fwd Yield column is colored green if Fwd Yield ≥ 5-Avg Yield.

Key metrics and fair value estimates of February’s Top 7 Dividend Growth Stocks (includes data sourced from Dividend Radar).

Next, let's look at each stock in turn. All data and charts are courtesy of Portfolio-Insight.com.

AbbVie Inc (ABBV)

ABBV is a worldwide, research-based biopharmaceutical company that develops and markets products to treat conditions such as rheumatoid arthritis, psoriasis, and Crohn's disease; hepatitis C; human immunodeficiency virus; endometriosis; thyroid disease; Parkinson's disease; and chronic kidney disease and cystic fibrosis. ABBV was incorporated in 2012 and is based in North Chicago, Illinois.

ABBV non-GAAP EPS and dividends paid (TTM), with stock price overlay

OGE Energy Corp (OGE)

Founded in 1995, OGE, together with its subsidiaries, provides energy and energy services primarily in the south-central United States. The company operates in two segments, Electric Utility and Natural Gas Midstream Operations. It offers physical delivery and related services for both electricity and natural gas. OGE is headquartered in Oklahoma City, Oklahoma.

OGE non-GAAP EPS and dividends paid (TTM), with stock price overlay

Enbridge Inc (ENB)

Founded in 1949 and headquartered in Calgary, Canada, ENB is an energy transportation and distribution company with operations in the United States, Canada, and internationally. The company operates the world's longest crude oil and liquids pipeline system. ENB owns and operates Canada's largest natural gas distribution company.

ENB non-GAAP EPS and dividends paid (TTM), with stock price overlay

Altria Group, Inc (MO)

MO was founded in 1919 and is headquartered in Richmond, Virginia. The company manufactures and sells cigarettes, smokeless products, and wine in the United States. In March 2008, MO spun off the subsidiary Phillip Morris to protect it from litigation in the United States.

MO non-GAAP EPS and dividends paid (TTM), with stock price overlay

Prudential Financial, Inc (PRU)

PRU is a financial services company, which, through its subsidiaries and affiliates, provides a range of financial products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management. The company has more than $1 trillion of assets under management. PRU was founded in 1875 and is headquartered in Newark, New Jersey.

PRU non-GAAP EPS and dividends paid (TTM), with stock price overlay

Edison International (EIX)

EIX is the parent company of Southern California Edison. The company generates and distributes electricity and provides energy services and technologies, including renewable energy, in the United States. The company generates electricity from hydroelectric, diesel, natural gas, nuclear, and photovoltaic sources. EIX was incorporated in 1987 and is based in Rosemead, California.

EIX non-GAAP EPS and dividends paid (TTM), with stock price overlay

MPLX LP (MPLX)

Founded in 2012 and based in Findlay, Ohio, MPLX is a master limited partnership that owns, operates, develops, and acquires midstream energy infrastructure assets. MPLX gathers, processes, and transports natural gas. The company also gathers, transports, stores, and markets natural gas liquids, crude oil, and refined petroleum products.

MPLX non-GAAP EPS and dividends paid (TTM), with stock price overlay

Concluding Remarks

This month, I screened for discounted DG stocks in Dividend Radar yielding at least 4% and with 5-year dividend growth rates of 6% or higher. I also screened for DG stocks with dividend increase streaks of 10 or more years.

I’m long three of this month’s candidates, ABBV, ENB, and MO. My positions are essentially full-sized positions based on my dynamic and flexible system for determining DivGro target weights, so I’m not planning to add shares at this time.

Although my ENB position is somewhat overweight, I don't like trimming stocks to achieve ideal target weights. The tax implications of selling winning positions are problematic, though that objection only applies to positions held in our taxable accounts. My strategy is to invest in underweight positions (rather than trim overweight positions) and slowly move towards my ideal target weights.

This month’s stocks are mostly suitable for income investors, but MO and ABBV should interest value and dividend-growth oriented investors, respectively.

As always, I advise readers to do their due diligence before investing.

Thanks for reading and take care, everybody!

Please follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

View the original article to see embedded media.

Also read:

7 Dividend Growth Stocks For January 2022

Top 7 Dividend Growth Stocks Picks For 2022

8 Best Defensive Dividend Growth Stocks

4 High Yield Closed-End Funds For Your Income Portfolio

2 Dividend Stocks On My Buy List

Focusing On Income, Too Many Stocks & Wrong Valuation: More Mistakes You Could Be Making

18 Dividend Stocks To Consider For The Next Decade

Hybrid Funds To Complement High Yield Portfolios

]]>
<![CDATA[7 Dividend Growth Stocks For January 2022]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-for-january-2022https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-for-january-2022Tue, 18 Jan 2022 16:09:47 GMTThese Dividend Radar stocks are discounted and yield at least 3%. Given their dividend growth history, the stocks may deliver annualized returns of 8% or more, according to the Chowder Rule.

My monthly 7 Dividend Growth Stocks series present seven high-quality dividend growth stocks for further analysis and possible investment.

I apply different screens every month to narrow down my watch list of more than 700 dividend growth stocks, Dividend Radar. Changing the screens from month to month highlights various aspects of dividend growth [DG] investing. For example, income investors prefer higher-yielding stocks, growth-oriented investors favor higher DG rates, and value investors look for deep discounts.

I screened for discounted stocks yielding at least 3% to compile this month’s candidates. I also required stocks to have Chowder Numbers (C#’s) that indicate some likelihood of delivering annualized returns of 8% or higher.

View the original article to see embedded media.

I ranked candidates that passed my screens using DVK Quality Snapshots and my ranking system.

In case you missed previous articles in this series, here are links to them:

About the Chowder Rule

The Chowder Number (C#) is a popular growth-oriented metric for screening DG stocks for possible investment. Named for Seeking Alpha author Chowder, the metric favors DG stocks likely to produce annualized returns of at least 8%.

To obtain the C#, you sum a stock’s forward dividend yield and five-year annual dividend growth rate.

Chowder required a C# of 8 for utilities yielding at least 4%, a C# of 12 for stocks yielding at least 3%, and a C# of 15 for stocks yielding less than 3%. According to the Chowder Rule, such stocks are likely to deliver annualized returns of at least 8%.

I've added a C# column to my spreadsheets and color-code cells as follows:

  • Green indicates stocks likely to deliver annualized returns of 8%
  • Yellow indicates stocks are somewhat likely to deliver annualized returns of 8%
  • Red indicates stocks are unlikely to deliver annualized returns of 8%

To differentiate between yellow and red candidates, I use 5 as the threshold for utilities yielding at least 4%, 8 for stocks yielding at least 3%, and 10 for stocks yielding less than 3%. Specifically:

  • For utilities yielding at least 4%: red < 5 ≤ yellow < 5 ≤ green
  • For stocks yielding at least 3%: red < 8 ≤ yellow < 12 ≤ green
  • For stocks yielding less than 3%: red < 10 ≤ yellow < 15 ≤ green

Screening and Ranking

For this month’s article, I used the following screens:

  • Investment Grade stocks (DVK Quality Scores of 15-25)
  • Forward Dividend Yield is at least 3.0%
  • Stocks likely or somewhat likely to deliver annualized returns of at least 8%
  • Current share price is below my fair value [FV] estimate

I use a survey approach to estimate FV, collecting fair value estimates and price targets from several sources, including Morningstar, Finbox, and Portfolio Insight. I also estimate fair value using each stock’s five-year average dividend yield. With up to eleven estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my FV estimate.

The latest Dividend Radar (dated December 14, 2022) contains 709 stocks. Of these, 158 are Investment Grade, 166 yields at least 3%, and 315 are discounted. Furthermore, 477 are likely or somewhat likely to deliver annualized returns of at least 8%. Only 35 stocks pass all four screens.

I ranked these candidates by sorting their DVK Quality Scores in descending order and breaking ties using the following metrics, in turn:

7 Top-Ranked Dividend Growth Stocks for January

Here are top-ranked dividend growth stocks that passed this month’s screens:

I own all of these stocks in my DivGro portfolio.

Below, I provide a table with key metrics of interest to dividend growth investors:

My risk-adjusted Buy Below prices allow premium valuations for the highest-quality stocks but require discounted valuations for lower-quality stocks.

The Fwd Yield column is colored green if Fwd Yield ≥ 5-Avg Yield.

Key metrics and fair value estimates of January’s Top 7 Dividend Growth Stocks (includes data sourced from Dividend Radar).

Next, let's look at each stock in turn. All data and charts are courtesy of Portfolio-Insight.com.

Merck & Co, Inc (MRK)

Founded in 1891 and headquartered in Kenilworth, New Jersey, MRK is a global health care company that offers health solutions through prescription medicines, vaccines, biologic therapies, and animal health products. MRK markets its products to drug wholesalers and retailers, hospitals, government entities and agencies, physicians, physician distributors, veterinarians, distributors, animal producers, and managed health care providers.

MRK non-GAAP EPS and dividends paid (TTM), with stock price overlay

Lockheed Martin Corporation (LMT)

Founded in 1909 and headquartered in Bethesda, Maryland, LMT is a global security and aerospace company engaged in researching, designing, developing, manufacturing, integrating, and sustaining advanced technology systems. LMT operates through four segments, Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space Systems.

LMT non-GAAP EPS and dividends paid (TTM), with stock price overlay

Bristol-Myers Squibb Company (BMY)

BMY discovers, develops, licenses, manufactures, markets, distributes, and sells biopharmaceuticals worldwide. Its pharmaceutical products include tablets or capsules. It also uses biologics to produce products administered through injections or by infusion. BMY was founded in 1887.

BMY non-GAAP EPS and dividends paid (TTM), with stock price overlay

3M Company (MMM)

MMM is a diversified technology company with worldwide operations. The company has leading positions in consumer and office; display and graphics; electronics and telecommunications; health care; industrial; safety, security and protection services; transportation; and other businesses. MMM was founded in 1902 and is headquartered in St. Paul, Minnesota.

MMM non-GAAP EPS and dividends paid (TTM), with stock price overlay

Amgen Inc. (AMGN)

Based in Thousand Oaks, California, AMGN is a biotechnology company. The company discovers, develops, manufactures, and delivers human therapeutics worldwide. It offers products for the treatment of severe illnesses in oncology/hematology, cardiovascular disease, inflammation, bone health, nephrology, and neuroscience. AMGN was founded in 1980.

AMGN non-GAAP EPS and dividends paid (TTM), with stock price overlay

Pinnacle West Capital Corporation (PNW)

PNW is a holding company that provides retail and wholesale electric services primarily in Arizona. Its subsidiary, Arizona Public Service Company, is a vertically integrated electric company that generates, transmits, and distributes electricity using coal, nuclear, gas, oil, and solar resources. PNW was founded in 1920 and is headquartered in Phoenix, Arizona.

PNW non-GAAP EPS and dividends paid (TTM), with stock price overlay

Gilead Sciences, Inc. (GILD)

GILD is a research-based biopharmaceutical company that discovers, develops, and commercializes innovative medicines. The company’s primary focus areas include human immunodeficiency virus, liver diseases such as chronic hepatitis B and C virus infections, oncology and inflammation, and severe cardiovascular and respiratory conditions. GILD was founded in 1987 and is headquartered in Foster City, California.

GILD non-GAAP EPS and dividends paid (TTM), with stock price overlay

Concluding Remarks

This month, I ranked Investment Grade Dividend Radar stocks yielding at least 3% and trading below my fair values estimates. Moreover, I wanted stocks with good growth prospects as determined by the Chowder Rule. Accordingly, I screened for stocks likely or somewhat likely to deliver annualized returns of at least 8%.

I’m long all of this month’s candidates. My positions are full-sized positions based on my dynamic and flexible portfolio target weighting strategy, so I’m not planning to add shares at this time.

Depending on your investment style and goals, I would recommend looking at the following stocks first:

  • For income investors: PNW and GILD, then MRK and BMY
  • For value investors: BMY and MRK, then LMT, AMGN, and MMM
  • For dividend growth-oriented investors: AMGN, then LMT and GILD

As always, I advise readers to do their due diligence before investing.

Thanks for reading and take care, everybody!

Please follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

View the original article to see embedded media.

Also read:

Top 7 Dividend Growth Stocks Picks For 2022

8 Best Defensive Dividend Growth Stocks

4 High Yield Closed-End Funds For Your Income Portfolio

2 Dividend Stocks On My Buy List

Focusing On Income, Too Many Stocks & Wrong Valuation: More Mistakes You Could Be Making

18 Dividend Stocks To Consider For The Next Decade

Hybrid Funds To Complement High Yield Portfolios

5 Discounted Dividend Contenders

]]>
<![CDATA[Top 7 Dividend Growth Stock Picks for 2022]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/top-7-dividend-growth-stock-picks-for-2022https://www.thestreet.com/dividendstrategists/dividend-ideas/top-7-dividend-growth-stock-picks-for-2022Mon, 03 Jan 2022 15:02:12 GMTThese high-quality dividend growth stocks are my top picks for 2022. Each stock is trading below my risk-adjusted Buy Below price and meets all five of my stock selection criteria.

As a dividend growth investor, I look to invest in high-quality and safe dividend growth [DG] stocks trading at reasonable valuations. My watchlist is Dividend Radar, an automatically generated spreadsheet listing stocks with dividend increase streaks of five or more years. The latest edition (December 24, 2021) contains 731 DG stocks.

I usually consider five stock selection criteria before buying DG stocks for my DivGro portfolio: The criteria are Stock Quality, Stock Valuation, Growth Outlook, Income Outlook, and Dividend Safety. I’ll briefly describe these criteria and a few additional screens I used to pick my top 7 DG stocks for 2022.

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Stock Selection Criteria

Stock Quality

I use DVK Quality Snapshots to determine quality scores (out of 25) for DG stocks. I rate stocks based on their quality scores: Exceptional (25), Excellent (23-24), Fine (19-22), Decent (15-18), Poor (10-14), and Inferior (0-9) stocks. Stocks with quality scores of 15-25 are Investment Grade stocks.

For this article, I considered only Investment Grade DG stocks (Quality Scores ≥ 15).

Stock Valuation

I routinely estimate the fair value of DG stocks to identify candidates trading at favorable valuations. By a favorable valuation, I mean a risk-adjusted Buy Below price that allows a premium of up to 10% for Exceptional stocks and a premium of up to 5% for Excellent stocks but requires fair value or below for stocks rated Fine.

I use a survey approach to estimate fair value, collecting fair value estimates and price targets from several online sources, such as Morningstar and Finbox. I also estimate fair value using each stock’s five-year average dividend yield. With several estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my fair value estimate.

For this article, I considered only DG stocks trading at favorable valuations (Price ≤ Buy Below price).

Growth Outlook

The Chowder Number [C#] sums a stock's forward yield and its 5-year dividend growth rate. It is a growth-oriented metric measuring the likelihood that a DG stock will deliver annualized returns of 8% or more. I color-code the C# green for candidates likely to deliver annualized returns of 8% and yellow for those less likely to do so. Candidates unlikely to deliver annualized returns of 8% are colored red.

For this article, I considered only DG stocks likely to deliver annualized returns of 8% (C#’s colored green).

Income Outlook

The 5-year Yield on Cost [YOC] is an income-oriented metric indicating what your YOC would be after buying a stock and holding it for five years, assuming the current 5-year dividend growth rate is maintained. I color-code the 5-year YOC column as follows: red < 2.50% ≤ yellow < 4.00% ≤ green.

For this article, I considered only DG stocks likely to have high 5-year YOC’s after five years of ownership (5-year YOC ≥ 4.00%).

Dividend Safety

While Dividend Safety Scores is one of the quality indicators of DVK Quality Snapshots, I consider this metric separately. I only want to invest in the safest DG stocks!

For this article, I selected DG stocks with Very Safe and Safe dividends (Dividend Safety Score > 60).

Additional Screens

The Dividend Radar spreadsheet separates stocks into three categories: Champions with dividend increase streaks of 25+ years, Contenders with streaks of 10-24 years, and Challengers with streaks of 5-9 years.

For this article, I decided to exclude Challengers (Dividend streak ≥ 10 years).

Finally, I wanted to use an invaluable performance metric for DG stocks, the trailing total return [TTR]. The TTR of DG stock includes both dividend payments and stock price appreciation, annualized over the period in question.

For this article, I screened an inflation-beating TTR over five years (5-year TTR ≥ 7.0%).

My Top Picks for 2022

Here are my top 7 DG stock picks for 2022:

I own the highlighted stocks in my DivGro portfolio.

Below, I provide a table with key metrics of interest to DG investors:

The Fwd Yield column is colored green if Fwd Yield ≥ 5-Avg Yield.

Key metrics of my Top 7 Dividend Growth Stock Picks for 2022 (includes data sourced from Dividend Radar).

Next, let's look at each stock in turn. All data and charts are courtesy of Portfolio-Insight.com.

1. Texas Instruments (TXN)

TXN designs, manufactures, and sells semiconductors globally to electronics designers and manufacturers. The company operates in two segments, Analog and Embedded Processing. It markets and sells semiconductor products through a direct sales force and distributors, and its website. TXN was founded in 1930 and is headquartered in Dallas, Texas.

TXN non-GAAP EPS and dividends paid (TTM), with stock price overlay

2. Lockheed Martin (LMT)

Founded in 1909 and headquartered in Bethesda, Maryland, LMT is a global security and aerospace company engaged in researching, designing, developing, manufacturing, integrating, and sustaining advanced technology systems. LMT operates through four segments, Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space Systems.

LMT non-GAAP EPS and dividends paid (TTM), with stock price overlay

3. Amgen (AMGN)

Based in Thousand Oaks, California, AMGN is a biotechnology company. The company discovers, develops, manufactures, and delivers human therapeutics worldwide. It offers products for the treatment of severe illnesses in oncology/hematology, cardiovascular disease, inflammation, bone health, nephrology, and neuroscience. AMGN was founded in 1980.

AMGN non-GAAP EPS and dividends paid (TTM), with stock price overlay

4. T. Rowe Price (TROW)

Founded in 1937, TROW is a financial services holding company that provides global investment management services to individual and institutional investors in the sponsored T. Rowe Price mutual funds and other investment portfolios and through variable annuity life insurance plans. TROW is based in Baltimore, Maryland.

TROW non-GAAP EPS and dividends paid (TTM), with stock price overlay

5. Snap-on (SNA)

SNA manufactures and markets tools, equipment, diagnostics, repair information, and systems solutions. It serves aviation and aerospace, agriculture, construction, government and military, mining, natural resources, power generation, technical education industries, and vehicle dealerships and repair centers. SNA was founded in 1920 and is headquartered in Kenosha, Wisconsin.

SNA non-GAAP EPS and dividends paid (TTM), with stock price overlay

6. Allstate (ALL)

Founded in 1931 and headquartered in Northbrook, Illinois, ALL is a holding company engaged in property-liability insurance and life insurance in the United States and Canada. The company sells insurance products covering automobiles, homes, and other properties under the Allstate, Esurance, and Encompass brand names. It also sells life insurance and voluntary accident and health insurance products.

ALL non-GAAP EPS and dividends paid (TTM), with stock price overlay

7. Best Buy (BBY)

BBY is a retailer of technology products, services, and solutions in North America. The company offers assistance to the consumers, small business owners, and educators, who visit its stores, engage with Geek Squad agents or use its Websites or mobile applications. BBY was founded in 1966 and is headquartered in Richfield, Minnesota.

BBY non-GAAP EPS and dividends paid (TTM), with stock price overlay

Concluding Remarks

This article identified my top 7 dividend growth stock picks for 2022. I used my usual stock selection criteria and also screened based on dividend streak and trailing total return annualized over five years.

I own six of these stocks in my portfolio. The exception is BBY, a stock with a stellar 5-year TTR of 25.9%. Note also that BBY has the second-highest C# (23) and the second-highest 5-year DGR (19.9%). I also like BBY’s forward yield, a respectable 2.76%.

I recently updated my system for determining target weights for DivGro positions. The system is dynamic and flexible, adjusts to prevailing market conditions, and allows me to calibrate factors when my goals change.

According to my system, I need to add/subtract the following number of shares to reach my target weight:

  • TXN: add 20 shares (target: 95 shares) – approx. $3,718
  • LMT: add 8 shares (target: 48 shares) – approx. $2,927
  • AMGN: subtract 22 shares (target: 68 shares) – approx. ($5,004)
  • TROW: subtract 11 shares (target: 89 shares) – approx. ($2,168)
  • SNA: add 18 shares (target: 78 shares) – approx. $3,869
  • ALL: add 33 shares (target: 151 shares) – approx. $3,887

Because of tax implications, I’m not planning to sell AMGN and TROW shares. Instead, I’ll plan on adding shares to the other positions when funds become available.

I would recommend looking at all of these stocks to see if any pique your interest. Based on your investment style, consider the following stocks first:

  • For income investors, AMGN and LMT
  • For value investors: ALL, AMGN, and LMT
  • For dividend growth-oriented investors: ALL, AMGN, BBY, and TXN
  • For very safe dividends: SNA, TROW, and TXN

As always, I advise readers to do their due diligence before investing.

Thanks for reading, and Happy New Year!

Please follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

View the original article to see embedded media.

Also read:

8 Best Defensive Dividend Growth Stocks

7 Dividend Growth Stocks For December 2021

4 High Yield Closed-End Funds For Your Income Portfolio

2 Dividend Stocks On My Buy List

Focusing On Income, Too Many Stocks & Wrong Valuation: More Mistakes You Could Be Making

18 Dividend Stocks To Consider For The Next Decade

Hybrid Funds To Complement High Yield Portfolios

5 Discounted Dividend Contenders

]]>
<![CDATA[8 Best Defensive Dividend Growth Stocks]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/8-best-defensive-dividend-growth-stockshttps://www.thestreet.com/dividendstrategists/dividend-ideas/8-best-defensive-dividend-growth-stocksMon, 20 Dec 2021 16:50:12 GMTThese high-quality dividend growth stocks have the highest defensiveness scores and may offer a somewhat safer shelter for your investment dollars, provided you buy them at reasonable valuations.

In the December edition of my 7 Dividend Growth Stocks series, I used a defensiveness scoring system developed by David Van Knapp [DVK] as my primary screen. The system awards points to stocks based on satisfying common notions of safety rather than for being members of a particular sector.

In that article, I identified the best defensive stocks that traded below my risk-adjusted Buy Below prices.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Today, I want to identify the best defensive dividend growth stocks regardless of their current valuations. While I wouldn’t recommend buying stocks until they trade at more favorable valuations, it is good to have a shortlist of high-quality defensive stocks ready to go!

On Defensiveness

DVK developed a defensiveness scoring system based on how stocks satisfy common notions of safety. I like the system, identifying stocks with defensive characteristics regardless of sector membership.

The scoring system is based on the following “common notions of safety”:

Defensiveness scoring system developed by David Van Knapp (source: A Different Look At 'Defensiveness').

Stocks with lower Beta’s, higher SSD Dividend Safety Scores, better VL Safety Ranks, and better Great Recession Performance, score higher in DVK’s defensiveness scoring system. The maximum possible score is 12 (3 points in each of the four categories).

While most defensive stocks fall in the traditional Defensive Sectors of Consumer Staples, Health Care, and Utilities, there are exceptions! I’ll point these out below.

Screening and Ranking

Portfolio Insight maintains and publishes a spreadsheet of more than 730 dividend growth stocks with dividend increase streaks of at least five years. The latest Dividend Radar (dated December 17, 2021) contains 732 stocks.

I used DVK’s defensiveness scoring system and screened all Dividend Radar stocks for stocks with defensiveness scores in the range of 10-12. There are 26 Dividend Radar stocks that scored 12 points, 36 that scored 11 points, and 50 that scored 10 points.

Below, I present the best defensive stocks in rank order. To rank stocks, I use DVK Quality Snapshots to determine quality scores and sort stocks in descending order by their quality scores, breaking ties using the following metrics, in order as necessary:

Defensiveness Scores

The following tables present defensiveness scores and some key metrics of interest to dividend growth investors. The last two columns show the GICS sector and one of three super sectors, either Defensive (D), Cyclical (C) or Sensitive (S).

Here are descriptions of the other columns:

The Fwd Yield column is colored green if Fwd Yield ≥ 5-Avg Yield.

My risk-adjusted Buy Below prices allow premium valuations for the highest-quality stocks but require discounted valuations for lower-quality stocks.

I use a survey approach to estimate fair value, collecting fair value estimates and price targets from several sources, including Morningstar, Finbox, and Portfolio Insight. Additionally, I estimate fair value using each stock’s five-year average dividend yield. With up to eleven estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my fair value estimate.

Stocks Scoring 12 For Defensiveness

Undervalued stocks scoring 12 for defensiveness

I own the five highlighted stocks in my DivGro portfolio.

With its strong forward yield of 3.25% and a discount of 19% below my Buy Below price, Lockheed Martin (LMT) presents the best opportunity here. LMT’s payout ratio is low at 39%, so the company has ample room to continue increasing its dividend in the foreseeable future.

Overvalued stocks scoring 12 for defensiveness

Air Products and Chemicals (APD) and Illinois Tool Works (ITW) have attractive metrics, but investors should wait for better entry points: APD below $292 per share and ITW below $227 per share.

Stocks Scoring 11 For Defensiveness

Undervalued stocks scoring 11 for defensiveness

Merck & Co (MRK) is trading 22% below my Buy Below price and offers a generous 3.65% forward yield. I think MRK presents a good opportunity for dividend growth investors. MRK’s payout ratio is low at 44%, meaning it is likely that the company will continue to increase its dividend at a generous rate.

Overvalued stocks scoring 11 for defensiveness

The Home Depot (HD) is trading 8% above my Buy Below price of $360. The stock yields only 1.70% but has a spectacular 5-year dividend growth rate of 19.4%. I would advise investors to wait for HD to drop below $360 per share before buying shares.

Stocks Scoring 10 For Defensiveness

Undervalued stocks scoring 10 for defensiveness

I like Bristol-Myers Squibb (BMY) here, given its 3.51% forward yield and impressive 5-year dividend growth rate of 16.2%. Moreover, the stock is trading 26% below my Buy Below price of $83. At 27%, the company’s payout ratio is low for biotechs.

Another stock worth considering is Pinnacle West Capital (PNW), which offers a generous 5.01% forward yield and a reasonable (for Utiltiies) 5-year dividend growth rate of 5.8%. It is likely that future dividend increases will be more modest, as the stock’s payout ratio is 66% but increasing rapidly.

Overvalued stocks scoring 10 for defensiveness

Lowe's (LOW) looks interesting given its impressive 5-year dividend growth rate of 16.9%. While the company’s forward yield is a bit low at 1.29%, notice how well the stock has performed on a trailing total return basis over the past five years. Just be sure not to pay more than $235 per share!

Concluding Remarks

DVK’s defensiveness scoring system identifies stocks with defensive characteristics regardless of sector membership. In this article, I identified the best defensive dividend growth stocks in Dividend Radar. There are 26 Dividend Radar stocks that scored 12 points, 36 that scored 11 points, and 50 that scored 10 points.

In the stocks that scored 12 points, 18 or 69% are from the traditional Defensive sectors. Likewise, 19 or 53% of those that scored 11 points, and 24 or 48% of those that scored 10 points, are from the traditional Defensive sectors

I would recommend looking at the following stocks, depending on your investment style and goals:

  • For income investors: PNW
  • For value investors: LMT, MRK
  • For dividend growth-oriented investors: BMY

The following stocks are worth considering if they trade below my Buy Below prices:

  • APD below $292 per share
  • ITW below $227 per share
  • HD below $360 per share
  • LOW below $235 per share

As always, I advise readers to do their due diligence before investing.

Thanks for reading and take care, everybody!

Please follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Also read:

7 Dividend Growth Stocks For December 2021

4 High Yield Closed-End Funds For Your Income Portfolio

2 Dividend Stocks On My Buy List

Focusing On Income, Too Many Stocks & Wrong Valuation: More Mistakes You Could Be Making

18 Dividend Stocks To Consider For The Next Decade

Hybrid Funds To Complement High Yield Portfolios

5 Discounted Dividend Contenders

The Top 10 Dividend Growth Opportunities

]]>
<![CDATA[7 Dividend Growth Stocks For December 2021]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-for-december-2021https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-for-december-2021Mon, 06 Dec 2021 16:19:55 GMTThese Dividend Radar stocks have high defensiveness scores and trade below my Buy Below prices. Given recent market volatility and concerns about rising inflation, these stocks may offer a somewhat safer shelter for your investment dollars.

Welcome to another edition of my monthly 7 Dividend Growth Stocks series in which I present seven high-quality dividend growth stocks for further analysis and possible investment.

I apply different screens every month to narrow down my watch list of more than 730 dividend growth stocks, Dividend Radar. Changing the screens from month to month highlights different aspects of dividend growth [DG] investing. For example, value investors tend to look for deep discounts, income investors prefer higher-yielding stocks, and growth-oriented investors favor higher DG rates.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

This month, I used a defensiveness scoring system developed by David Van Knapp as my primary screen. The system awards points based on satisfying common notions of safety rather than for being in a certain economic sector. Additionally, I screened for stocks trading below my risk-adjusted Buy Below prices.

I ranked candidates that passed both screens using DVK Quality Snapshots and my ranking system.

In case you missed previous articles in this series, here are links to them:

About Defensiveness

There are at least three classification systems that group stocks based on sectors or industries. I use the Global Industry Classification Standard (GICS), a market-based system also employed by the S&P 500 Index.

Sectors can be further categorized into super sectors based on how they tend to perform during different phases of the business cycle:

  • Defensive Sectors: Consumer Staples, Health Care, Utilities
  • Cyclical Sectors: Consumer Discretionary, Financials, Materials, Real Estate
  • Sensitive Sectors: Communication Services, Energy, Industrials Information Technology

Defensive Sectors are not closely tied to the economy because companies in these sectors provide goods and services that are always in demand.

While the categorization of stocks into super sectors by their sector membership is useful, David Van Knapp notes a shortcoming in the approach. Specifically, stocks belonging to Defensive Sectors may have non-defensive characteristics, while stocks from Cyclical and Sensivitve Sectors may have defensive characteristics.

Instead, David Van Knapp suggested identifying “safe” companies regardless of sector membership and grouping them together in a list of defensive stocks. He developed a scoring system based on the following “common notions of safety”:

Defensiveness scoring system developed by David Van Knapp (source: A Different Look At 'Defensiveness').

Stocks with lower Beta’s, higher SSD Dividend Safety Scores, better VL Safety Ranks, and better Great Recession Performance score higher in David Van Knapp’s defensiveness scoring sytem. The maximum possible score is 12 (3 points in each of 4 categories).

Screening and Ranking

For this month’s article, I used the following screens:

  • Defensiveness scores of 11 or 12
  • Price is below my risk-adjusted Buy Below price

My risk-adjusted Buy Below prices allow premium valuations for the highest quality stocks, but require discounted valuations for lower quality stocks.

I use a survey approach when estimating fair value, collecting fair value estimates and price targets from several sources, including Morningstar, Finbox, and Portfolio Insight. Additionally, I estimate fair value using each stock’s five-year average dividend yield. With up to eleven estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my fair value estimate.

The latest Dividend Radar (dated December 3, 2021) contains 733 stocks. Of these, 56 have defensiveness scores of 11 or 12, but only 29 trade below my risk-adjusted Buy Below price.

I ranked these candidates by sorting their quality scores (as determined by DVK Quality Snapshots) in descending order and used the following metrics, in turn, to break any ties:

The tables below show this month’s picks in rank order.

7 Top-Ranked Dividend Growth Stocks for December

Here are top-ranked dividend growth stocks that passed this month’s screens:

I own the six highlighted stocks in my DivGro portfolio.

Below, I provide a table with key metrics of interest to dividend growth investors:

The Fwd Yield column is colored green if Fwd Yield5-Avg Yield.

Key metrics and fair value estimates of December’s Top 7 Dividend Growth Stocks (includes data sourced from Dividend Radar).

Next, let's look at each stock in turn. All data and charts are courtesy of Portfolio-Insight.com.

Johnson & Johnson (JNJ)

Founded in 1886 and based in New Brunswick, New Jersey, JNJ has grown into one of the largest companies in the world. The company is a leader in the pharmaceutical, medical device, and consumer products industries. JNJ distributes its products to the general public, retail outlets and distributors, wholesalers, hospitals, and health care professionals.

JNJ non-GAAP EPS and dividends paid (TTM), with stock price overlay

Walmart Inc (WMT)

WMT is the world's largest retailer and the biggest private employer in the world. Based in Bentonville, Arkansas, and founded in 1962, the company is a multinational retailer with more than 11,000 stores worldwide. Additionally, the company operates e-commerce websites in many countries. WMT operates through three segments: Walmart U.S., Walmart International, and Sam's Club.

WMT non-GAAP EPS and dividends paid (TTM), with stock price overlay

Merck & Co, Inc (MRK)

Founded in 1891 and headquartered in Kenilworth, New Jersey, MRK is a global health care company that offers health solutions through prescription medicines, vaccines, biologic therapies, and animal health products. MRK markets its products to drug wholesalers and retailers, hospitals, government entities and agencies, physicians, physician distributors, veterinarians, distributors, animal producers, and managed health care providers.

MRK non-GAAP EPS and dividends paid (TTM), with stock price overlay

Medtronic plc (MDT)

MDT manufactures and sells device-based medical therapies to hospitals, physicians, clinicians, and patients worldwide. The company operates in four segments: Cardiac and Vascular Group, Minimally Invasive Therapies Group, Restorative Therapies Group, and Diabetes Group. MDT was founded in 1949 and is headquartered in Dublin, Ireland.

MDT non-GAAP EPS and dividends paid (TTM), with stock price overlay

General Dynamics Corporation (GD)

Headquartered in Falls Church, Virginia, GD is an aerospace and defense company offering products and services in business aviation; land and expeditionary combat systems, armaments and munitions; shipbuilding and marine systems; and information systems and technologies. Formed in 1952, GD has grown steadily through the acquisition of many businesses.

GD non-GAAP EPS and dividends paid (TTM), with stock price overlay

Lockheed Martin Corporation (LMT)

Founded in 1909 and headquartered in Bethesda, Maryland, LMT is a global security and aerospace company engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems. LMT operates through four segments, Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space Systems.

LMT non-GAAP EPS and dividends paid (TTM), with stock price overlay

Air Products and Chemicals, Inc (APD)

Founded in 1940 and headquartered in Allentown, Pennsylvania, APD produces atmospheric gases (such as oxygen and nitrogen), process gases (such as hydrogen and helium), and specialty gases, as well as the equipment for the production and processing of gases. APD also provides semiconductor materials, refinery hydrogen, natural gas liquefaction, and advanced coatings and adhesives.

APD non-GAAP EPS and dividends paid (TTM), with stock price overlay

Concluding Remarks

This month, I ranked Dividend Radar stocks with defensiveness scores of 11 or 12 out of a maximum of 12 points, according to David Van Knapp’s defensiveness scoring system. Additionally, I screened for stocks trading below my risk-adjusted Buy Below prices.

I’m long six of this month’s seven candidates. The exception is WMT, the top performer based on 5-year compound trailing total returns. While WMT has a perfect quality score of 25, I don’t like its low yield and low 5-year compound annual dividend growth rate.

All my positions are full-sized positions based on my dynamic and flexible portfolio target weighting strategy, so I’m not planning to add shares at this time.

I would recommend looking at the following stocks, depending on your investment style and goals:

  • For income investors: MRK
  • For value investors: LMT, MRK
  • For dividend growth-oriented investors: APD

As always, I advise readers to do their due diligence before investing.

Thanks for reading and take care, everybody!

Please follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Also read:

4 High Yield Closed-End Funds For Your Income Portfolio

2 Dividend Stocks On My Buy List

Focusing On Income, Too Many Stocks & Wrong Valuation: More Mistakes You Could Be Making

18 Dividend Stocks To Consider For The Next Decade

Hybrid Funds To Complement High Yield Portfolios

5 Discounted Dividend Contenders

2 Investing Mistakes We All Make

The Top 10 Dividend Growth Opportunities

]]>
<![CDATA[4 High Yield Closed-End Funds For Your Income Portfolio]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/4-high-yield-closed-end-funds-for-your-income-portfoliohttps://www.thestreet.com/dividendstrategists/dividend-ideas/4-high-yield-closed-end-funds-for-your-income-portfolioMon, 22 Nov 2021 16:14:36 GMTRegardless of the discount or premium to NAV, I believe the more important aspect is the subsequent total return.

Many investors have heard of mutual funds and exchange-traded funds (ETFs) but aren't familiar with Closed-End Funds (CEFs). CEFs are a well-kept secret in the income community even though some of the largest investment houses from Blackrock to Fidelity offer CEF investment vehicles.

What exactly are CEFs?

A CEF is a publicly-traded investment company that invests in a variety of securities, such as stocks and bonds. A CEF will raise capital through an IPO, and the reason they are considered closed funds is that once the capital is raised, the issuance of new shares is closed to investors. After the IPO closes, shares are no longer available from the fund's sponsor. Upon completion of the IPO, CEFs are traditionally listed on a stock exchange such as the NYSE or Nasdaq, where investors can buy and sell shares with other investors.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

How do CEFs work?

Many CEFs are an actively managed selection of investment holdings that collectively create the value of a fund known as a Net Asset Value (NAV). The actual fund's share price is determined by the market, not the NAV. CEFs are designed to convert their total returns into consistent income over time. Many CEFs utilize a managed distribution program to generate regular distributions to their investors. Distributions are comprised of interest income, dividends, realized capital gains, and potentially the return of capital. Regulations require a fund to distribute most of its investment income and realized gains each year. The NAV, which originates from the original seed capital raised in the IPO, fluctuates as the holdings appreciate or depreciate, and the holdings determine the fund's total return.

What I Look For When Selecting A CEF To Invest In

There are many CEFs to choose from, so I normally start with the investment sponsor or investment company managing the fund. I will normally look for BlackRock, Cohen & Steers, Eaton Vance, or PIMCO. These are just the companies I keep an eye out for, as many other companies have CEF products, such as Wells Fargo, Morgan Stanley, Nuveen, Invesco, JHancock, and First Trust. Next, I look at the strategy and holdings of a fund. If I am looking for an energy fund, I would like to see certain companies in the holdings such as Enbridge and Enterprise Products Partners. Then I look at the Market Cap and like to see more than $500 million on this line item. The distribution rate is one of the critical factors, and I normally want to see 5.5% or higher. If I was going to create a screen, 5.5% on the distribution and $500 million on the market cap would be two of my starting points. The last thing I want to look at is the total return of the CEF. Most people look at the discount to the premium ratio of a CEF and are under the impression that buying a CEF with a share price that's discounted to the NAV means they are getting a bargain. Regardless of the discount or premium, I believe the more important aspect is the subsequent total return.

Four CEFs I Am Interested In For Income Generation

The first fund I am interested in is the Cohen & Steers Quality Income Realty Fund (RQI). RQI invests in real estate securities with the primary investment objective of generating income. RQI has 173 holdings within its portfolio with $3 billion in managed assets. RQI has a tight correlation between its share price and NAV as it trades at a -1.29% discount. RQI generates a distribution rate of 5.70% and has a three-year annualized return on price of 22.87%. I am familiar with many of its holdings as companies such as American Tower Corporation, Public Storage, Simon Property Group, Duke Realty, and Equinix can be found within its portfolio.

The next fund I am interested in is the Cohen & Steers REIT & Preferred Income (RNP) CEF. RNP is similar to RQI but differs as it invests in diversified preferred securities in addition to real estate. RNP also has a primary investment objective of generating higher than average income for its investors. RNP provides more diversification than RQI, with 305 holdings spread across $1.8 billion in managed assets. RQI has traded in a tight range with a 1.29% discount to its NAV. RNP has provided investors with a three-year annualized return of 22.87%. There is some overlap in RNP compared to RQI as American Tower Corporation, Public Storage, Simon Property group, and Equinix are part of its largest holdings.

The next fund on my list offers a higher yield, and it's the PIMCO Dynamic Credit and Mortgage Income Fund (PCI). PCI is interesting as it utilizes an allocation strategy across multiple fixed income sectors, with an emphasis on opportunities in developed and emerging global credit markets. PCI grabbed my attention because it provides access to areas I wouldn't invest in on my own, in addition to areas I wouldn't have access to. PCI has 1,241 holdings with a current distribution rate of 9.88%. PCI trades at a premium of 5.39% to its NAV and has generated an average annualized return over the past three years of 9.43%. While the overall return is low, my main focus is income generation and getting 9.88% in a monthly distribution with some capital appreciation checks off my boxes from an income investment.

The last CEF I put on my list is the BlackRock Science & Technology Trust II (BSTZ). BSTZ is a newer CEF as its inception was in June of 2019. BSTZ's investment objectives are to provide total return and income by combining current income, gains, and long-term capital appreciation. BSTZ has $3.4 billion in managed assets with 109 holdings in its portfolio. BSTZ trades at a discount of -3.35% to its NAV, and the year to date has returned 17.61% on its price. BSTZ has a distribution rate of 5.47%, and some of the biggest tech companies, including Tesla and Square, sit within its largest holdings.

Income And Appreciation

The combination of these funds in equal shares would have generated a YTD return of 22.92% and generated a distribution rate of 6.87% in income. Many people have dismissed income investing for the lack of capital gains and made the argument that you're better off just investing in an S&P index fund and selling shares for income. Through the combination of these four CEFs, you can have the best of both worlds as you don't need to sell shares to generate income, and your initial investment in 2021 would have appreciated by 22.92%. I think CEFs can be an interesting addition to an income portfolio as they offer diversification, above-average yields, and capital appreciation prospects.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Also read:

2 Dividend Stocks On My Buy List

7 Dividend Growth Stocks For November 2021

Focusing On Income, Too Many Stocks & Wrong Valuation: More Mistakes You Could Be Making

18 Dividend Stocks To Consider For The Next Decade

Hybrid Funds To Complement High Yield Portfolios

5 Discounted Dividend Contenders

2 Investing Mistakes We All Make

The Top 10 Dividend Growth Opportunities

]]>
<![CDATA[Two Dividend Stocks On My Buy List]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/two-dividend-stocks-on-my-buy-listhttps://www.thestreet.com/dividendstrategists/dividend-ideas/two-dividend-stocks-on-my-buy-listThu, 18 Nov 2021 16:25:18 GMTCompanies must show a strong dividend triangle and more growth potential going forward. Last month, two companies caught my attention.

As the market constantly evolves, my team at DSR and I are confident in our ability to find incremental stock investment opportunities. Each month, we update our buy list and look for fresh ideas. Those companies must show a strong dividend triangle and more growth potential going forward. Last month, two companies caught my attention.

AIR PRODUCTS & CHEMICALS (APD)

The Company in a Nutshell

  • APD is the largest supplier of hydrogen and helium in the world. It has several facilities on customer plant sites.
  • It serves multiple customers and various industries. Switching costs are considerable for its customers.
  • While many companies in the basic materials sector are stuck selling commodities, APD sells expertise, stability, and technology.

View the original article to see embedded media.

Business Model

Air Products and Chemicals, Inc., is an industrial gases company. The Company provides essential industrial gases, related equipment and applications to customers in various industries, including refining, chemical, metals, electronics, manufacturing, and food and beverage. The Company is also a supplier of liquefied natural gas process technology and equipment. It also develops, engineers, builds, owns and operates industrial gas projects, including gasification projects, carbon capture projects and carbon-free hydrogen projects supporting global transportation and energy transition. The Company operates through five segments: Industrial Gases-Americas, Industrial Gases-Europe, Middle East, and Africa (EMEA), Industrial Gases-Asia, Industrial Gases-Global, and Corporate and other. It operates approximately 836 production and distribution facilities in North and South America, EMEA and Asia.

Latest Quarter Information

What the CEO said:

The committed, dedicated and motivated team at Air Products proved once again that they can deliver results now while developing and executing megaprojects for profitable growth in the future. We delivered excellent results for the year, despite significant external challenges. We announced significant projects across our core gasification, carbon capture and hydrogen growth platforms, including the net-zero hydrogen facility in Alberta, Canada and the massive blue hydrogen project in Louisiana, while also closing on the $12 billion Jazan acquisition. I remain very optimistic about the future of Air Products.

What we say:

11-13-2021, APD's 4Q'21 revenue by business segments- Industrial Gases - Americas: $1,115M (+22%), EMEA: $674M (+33%), Asia: $754M (+6%). APD announced significant projects across its core gasification, carbon capture and hydrogen growth platforms, including the net-zero hydrogen facility in Alberta and the blue hydrogen project in Louisiana, and also closed the $12B Jazan acquisition. APD has guided FY22 AEPS of $10.20-$10.40/ share, up 13%-15% over the prior year and capital expenditures of $4.5-5.0B. Its dividend increase marked the 39th consecutive year of increases.

Investment Thesis

APD has found an interesting way to position its business in a sector where most are stuck with commodity price fluctuations. As a provider of industrial gases, APD signs long-term contracts with its customers. Industrial customers are more interested in stability and reliability than costs since gases are a small part of their expenses but are vital to their business. ADP made a smart move in acquiring Shell’s and GE’s gasification businesses in 2018. The company became a leader in this field and has opened doors to expand its business in China and India. Finally, APD as an ambitious growth plan in motion including total capital expenditures of $18B. Those investments should support APD’s internal growth for the decade to come.

Potential Risks

While the APD core business is protected with long-term contracts, the business’s growth is still linked to the economic cycle. As an industrial gas supplier, APD sales will be directly contingent on demand for gases. It looks like we are getting away from the current recession, but keep in mind that demand will remain cyclical. APD is not the only company who made important acquisitions recently. Air Liquide bought Airgas in 2016 (market cap of $78B) and the Praxair-Linde merger in 2018 (market cap of over $130B) are two of the giants with which APD must compete. Competition will be fierce to grab market share. This usually comes with a price war leading to smaller margins. While APD has great hope of expanding its business in emerging markets, other players have the same plan.

Dividend Growth Perspective

Air Products & Chemicals has a stellar dividend streak that started back in 1982. While the APD price more than doubled between 2016 and 2020, its dividend increased from $0.81/share to $1.34/share (+65%). In 2021, the company rewarded shareholders with another 12% increase (to $1.50/share). That’s enough to forgive the low yield of 2%. With both payout and cash payout ratios between 50% and 60%, shareholders can expect more dividend growth in the coming years. There is no doubt APD is a candidate for Dividend King status in the future.

LAM RESEARCH CORP. (LRCX)

The Company in a Nutshell

  • Lam’s wafer technology is used for almost all advanced chips. Its innovative wafer fabrication equipment and services allow chipmakers to build smaller, faster, and better performing electronic devices.
  • Through its Etch division LRCX gets strong margins providing cash flow for various projects all at once.
  • To stay on top LRCX is growing by acquisition like many other tech companies.

Business Model

Lam Research Corporation is a supplier of wafer fabrication equipment and services to the semiconductor industry. The Company designs, manufactures, markets, refurbishes and services semiconductor processing equipment used in the fabrication of integrated circuits (ICs). It operates through manufacturing and servicing of wafer processing semiconductor manufacturing equipment segment. Its products and services are designed to help its customers build performing devices that are used in a variety of electronic products, including mobile phones, personal computers, servers, wearables, automotive vehicles, and data storage devices. Its customer base includes semiconductor memory, foundry, and integrated device manufacturers (IDMs) that make products such as non-volatile memory (NVM), dynamic random-access memory (DRAM), and logic devices. It offers its services in areas like nanoscale applications enablement, chemistry, plasma and fluidics and advanced systems engineering.

Latest Quarter Information

What the CEO said:

“Driven by strong demand and solid execution, Lam delivered its sixth consecutive quarter of record revenue and earnings per share,” said Tim Archer, Lam Research’s President and Chief Executive Officer. “In a robust wafer fabrication equipment environment, Lam is delivering the innovation needed for the success of our customers' semiconductor manufacturing roadmaps.”

What we say:

10-28-2021, LRCX reported a strong quarter but the company missed estimates. Nonetheless, revenues were up 36%, driven by 36% increase in system revenue to $2.92B and 34% increase in customer support-related revenue and other. Liquidity decreased to $4.9 billion (from $6B). This decrease was primarily the result of $1.2 billion of share repurchases, including net share settlement of employee stock-based compensation; $185.4 million of dividends paid to stockholders; and $136.4 million of capital expenditures, partially offset by $457.5 million of cash generated from operating activities.

Investment Thesis

Lam rocks the market with solid results and surfs on many tailwinds. It is gaining market share in wafer fabrication equipment (WFE) used for radio frequency amplifiers, LEDs, optical computer components, and CPUs for computers. Lam Research’s strength lies in its high margins. The company counts many strong chipmakers (Samsung, Electronic Arts, Taiwan Semiconductor Manufacturing) as customers and offers a strategic service for them. These large chipmakers need Lam’s high-tech products to stay on top of their game. Therefore, LRCX is expected to grow faster than other players in its industry. While the stock price has surged, it’s 12-month forward PE ratio is 24. There is a price to pay for quality.

Potential Risks

Lam Research faces strong competition from Applied Material (AMAT) and Tokyo Electron. If LRCX invests well in the R&D to develop cutting edge technologies, it will be dominant. However, new players keep coming up with great technologies. While facing strong competition, LRCX must deal with the cyclical demand of semiconductors. We expect the company to see some growth in the coming years after most of its customers have reduced their inventories over the past 2 years. As you have seen back in 2018, LRCX’s stock price can be quite volatile as the demand for semiconductors fluctuates. Keep in mind demand for semiconductors is highly cyclical in line with companies’ investment cycle.

Dividend Growth Perspective

Lam paid its first dividend in 2014. Lam’s quarterly payment started at $0.18/share and has risen to $1.30 since then. After its strong bullish stock price appreciation in 2019, LRCX now offers only a 1% yield. This is a company where you get both stock growth and dividend growth. LRCX shows a strong dividend triangle where both revenue and earnings are on an uptrend. LRCX currently shows payout ratios around 20-30%, leaving plenty of room for double-digit dividend growth for years to come. However, an investment in LRCX is more about the future of its high-tech products than about its current dividend income.

Final Thought

Those two companies are trading at or close to their highest price level. This could discourage some investors to jump in the train thinking it is too late. On the other side, great companies that continue to thrive often break their price record year after year. I am a patient investor and I don’t mind waiting a few years to see a company bloom in my portfolio.

Take care,

Mike Heroux, Passionate Investor & founder of Dividend Stocks Rock

P.S. On Thursday, November 18th, I’ll be hosting a free webinar about how to position your portfolio for 2022 and I’ll answer all your questions. Register for this new webinar!

Follow me on

Twitter @TheDividendGuy

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**Please do your own due-diligence before investing in any stocks we discuss in this article**

I may hold shares of companies discussed in this article.

View the original article to see embedded media.

Also read:

7 Dividend Growth Stocks For November 2021

Focusing On Income, Too Many Stocks & Wrong Valuation: More Mistakes You Could Be Making

18 Dividend Stocks To Consider For The Next Decade

Hybrid Funds To Complement High Yield Portfolios

5 Discounted Dividend Contenders

2 Investing Mistakes We All Make

The Top 10 Dividend Growth Opportunities

My Dividend Growth Investing Buying Process

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<![CDATA[7 Dividend Growth Stocks For November 2021]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-for-november-2021https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-for-november-2021Mon, 15 Nov 2021 16:57:27 GMTThese Dividend Kings are discounted valuations, and all but one have Very Safe or Safe dividends. The exception offers a high yield to compensate for the somewhat higher risk of a Borderline Safe dividend.

Every month, I identify seven high-quality dividend growth stocks [DG] for further analysis and possible investment. I usually select stocks from my watch list of DG stocks, Dividend Radar.

Dividend Radar tracks stocks trading on U.S. Exchanges that have dividend increase streaks of five or more years. Portfolio Insight maintains Dividend Radar and publishes it every Friday as a free resource for DG investors.

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I use different screens every month to narrow down more than 730 Dividend Radar stocks. This month, I screened for Dividend Kings trading well below my Buy Below prices. Dividend Kings are stocks of companies that have increased their annual dividend payouts for 50 or more consecutive years.

In case you missed them, here are links to previous articles in this series:

About the Dividend Kings

Dividend Kings are companies with a remarkable track record of 50 or more years of higher dividend payouts. That's an extraordinary feat, as these companies have navigated market crashes, economic recessions, technological revolutions, and shifting consumer tastes to deliver ever-increasing dividends to investors.

Unlike the Dividend Aristocrats, membership of the Dividend Kings is not maintained by a specific organization. Instead, membership is defined loosely based on a stock's dividend increase streak. For this article, I used Dividend Radar and Sure Dividend as sources, including all but one of the stocks listed as Dividend Kings by either source. The exception is Farmers & Merchants Bancorp (FMCB), a stock that trades over-the-counter and one not tracked in Dividend Radar.

Screening and Ranking

For this month’s article, I used the following screens:

  • Dividend Kings (dividend increase streaks of 50+ years).
  • Investment Grade stocks (quality scores 15-25)
  • Price is at least 7% below my risk-adjusted Buy Below price

I use DVK Quality Snapshots to determine quality scores (out of 25) for each DG stock. My stock ratings are simply mapped from quality scores, as is the distinction between Investment and Speculative grades:

I present risk-adjusted Buy Below prices along with key metrics of interest to DG investors. Each Buy Below price is determined by adjusting my fair value [FV] estimate according to the stock’s quality score. For Exceptional and Excellent stocks, I allow premiums of up to 10% and 5%, respectively. For Fine stocks, the Buy Below price equals my FV estimate. And for Decent stocks, I require a discount of at least 10%.

To estimate FV, I use a survey approach, collecting FV estimates and price targets from several sources, including Morningstar, Finbox, and Portfolio Insight. I also estimate fair value using each stock’s five-year average dividend yield. With up to eleven estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my FV estimate.

The latest Dividend Radar (dated November 5, 2021) contains 736 stocks.

Exactly seven Dividend Kings pass this month’s screens!

I ranked these candidates by sorting their quality scores (as determined by DVK Quality Snapshots) in descending order and used the following metrics, in turn, to break any ties:

The tables below show the seven Dividend Kings in rank order.

7 Top-Ranked Dividend Growth Stocks for November

Here are top-ranked dividend growth stocks that pass this month’s screens:

I own the five highlighted stocks in my DivGro portfolio.

Below, I provide a table with key metrics of interest to dividend growth investors:

The Fwd Yield column is colored green if Fwd Yield ≥ 5-Avg Yield.

Key metrics and fair value estimates of November’s Top 7 Dividend Growth Stocks (includes data sourced from Dividend Radar).

Next, let's look at each stock in turn. All data and charts are courtesy of Portfolio-Insight.com.

Johnson & Johnson (JNJ)

Founded in 1886 and based in New Brunswick, New Jersey, JNJ has grown into one of the largest companies in the world. The company is a leader in the pharmaceutical, medical device, and consumer products industries. JNJ distributes its products to the general public, retail outlets and distributors, wholesalers, hospitals, and health care professionals.

JNJ non-GAAP EPS and dividends paid (TTM), with stock price overlay

The Coca-Cola Company (KO)

KO is the world's largest beverage company and the leading producer and marketer of soft drinks. Along with Coca-Cola, recognized as the world's best-known brand, The Coca-Cola Company markets four of the world's top five soft drink brands, including diet Coke, Fanta, and Sprite. KO was founded in 1886 and is headquartered in Atlanta, Georgia.

KO non-GAAP EPS and dividends paid (TTM), with stock price overlay

Emerson Electric Co. (EMR)

EMR provides technology and engineering solutions to industrial, commercial, and consumer markets worldwide. The company is engaged in designing, manufacturing, and selling a broad range of electrical, electromechanical, and electronic products and systems. EMR was founded in 1890 and is headquartered in St. Louis, Missouri.

EMR non-GAAP EPS and dividends paid (TTM), with stock price overlay

3M Company (MMM)

MMM is a diversified technology company with worldwide operations. The company has leading positions in consumer and office; display and graphics; electronics and telecommunications; health care; industrial; safety, security and protection services; transportation; and other businesses. MMM was founded in 1902 and is headquartered in St. Paul, Minnesota.

MMM non-GAAP EPS and dividends paid (TTM), with stock price overlay

Hormel Foods Corporation (HRL)

HRL is a multinational manufacturer and marketer of consumer-branded food and meat products. The company sells its products through sales personnel, as well as through independent brokers and distributors. Customers include retailers, hospitals, nursing homes, and marketers of nutritional products. HRL was founded in 1891 and is based in Austin, Minnesota.

HRL non-GAAP EPS and dividends paid (TTM), with stock price overlay

PPG Industries, Inc. (PPG)

PPG manufactures and distributes a variety of coatings, specialty materials, and glass products. The company’s Performance Coatings segment provides light industrial and specialty coatings, protective and marine coatings and finishes, and sealants. The company also operates in two additional segments: Industrial Coatings and Glass. PPG was founded in 1883 and headquartered in Pittsburgh, Pennsylvania.

PPG non-GAAP EPS and dividends paid (TTM), with stock price overlay

Altria Group, Inc. (MO)

MO was founded in 1919 and is headquartered in Richmond, Virginia. The company manufactures and sells cigarettes, smokeless products, and wine in the United States. In March 2008, MO spun off the subsidiary Phillip Morris to protect it from litigation in the United States.

MO non-GAAP EPS and dividends paid (TTM), with stock price overlay

Note that Altria spun off Phillip Morris International (PM) in 2008 and reduced its dividend by an amount equivalent to the size of the spin-off. However, the combined dividend of MO and PM continued to increase every year, so some investors consider MO to be a Dividend King.

Concluding Remarks

I ranked Investment Grade Dividend Kings trading at least 7% below my Buy Below prices in this article. Dividend Kings are remarkable stocks with higher annual dividend payouts for at least five decades!

I’m long five of this month’s seven candidates. All but one of my positions are full-sized positions based on my dynamic and flexible portfolio target weighting strategy, so I’m not planning to add shares to those positions at this time. The exception is my HRL position, which I could increase by about 100 shares to turn into a full-sized position.

Neither of the two stocks I don’t own looks interesting to me. I’d like to see stronger 5-YOC and C# metrics, and EMR and PPG just don’t deliver the goods! Both have metrics colored red, which indicates unacceptable values in my view.

I would recommend looking at the following stocks, depending on your investment style and goals:

  • For income investors: MO
  • For value investors: KO, MMM, MO
  • For dividend growth-oriented investors: HRL

As always, I advise readers to do their due diligence before investing.

Thanks for reading and take care, everybody!

Please follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Also read:

Focusing On Income, Too Many Stocks & Wrong Valuation: More Mistakes You Could Be Making

18 Dividend Stocks To Consider For The Next Decade

Hybrid Funds To Complement High Yield Portfolios

5 Discounted Dividend Contenders

2 Investing Mistakes We All Make

The Top 10 Dividend Growth Opportunities

My Dividend Growth Investing Buying Process

How To Generate Income From Stocks You Don't Own

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<![CDATA[Focusing On Income, Too Many Stocks & Wrong Valuation: More Mistakes You Could be Making]]>https://www.thestreet.com/dividendstrategists/investing-strategy/focusing-on-income-too-many-stocks-wrong-valuation-more-mistakeshttps://www.thestreet.com/dividendstrategists/investing-strategy/focusing-on-income-too-many-stocks-wrong-valuation-more-mistakesWed, 10 Nov 2021 15:47:16 GMTHere are three more investing mistakes many of us do again and again!

A couple of weeks ago, I wrote about two common mistakes done by most investors. But there is more! Here are three more investing mistakes many of us do again and again!

Putting Income Above All

For many DSR members, the #1 reason they choose a dividend investing methodology is to create an income stream from their portfolio. I am sure you dream of living off your dividends while your capital is comfortably secured in your brokerage account. You can then live a happy retirement and make sure you leave something behind. If you hold your shares, you get your paycheck. It is like a pension plan, but you get to manage it! Through the choice of high yielding companies, you see the opportunity to increase your pension check “without taking additional risks”. While I appreciate the desire for additional dividend income, I respectfully suggest you look at the bigger picture.

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Why are you doing this?

If you consider the past 10 years history in the market, you can no doubt understand why I am waving the red flag. After all, high yielding assets have performed just as well (and sometimes better) than the entire market. Why would you change a winning strategy, especially when it helps you live more comfortably in retirement? The search for high yielding stocks makes plenty of sense when you look at the graph below. For similar returns, you might as well enjoy a high yield (sometimes synonym of “guaranteed” income for investors”).

However, it’s not that simple…

How it may hurt your portfolio

In light of what has happened to the market over the past decade, I can confirm that not all high yielding stocks are bad investments. However, you must take some precaution when it comes to selecting high yield stocks.

First, considering inflation. A high-income solution is only interesting if the dividend increases by at least 2% per year. If you cannot reasonably expect that from the companies in your portfolio, then you are running into potential trouble. Unless you are 80 today (you can skip this part if you are), you will have to generate income for 10, 20 or possibly 30 years. With the likelihood of living up to 90 or 95 years old, no dividend increases should be a concern.

Second, an absence of dividend growth is the first step toward a dividend cut. While the stock market went up and down a few times in the past decade, we haven’t recorded a single recession. If some of your holdings have not increased their dividend payouts in the past 5 years while interest rates were low and the economy was doing well, what is going to happen when we go through difficult times? You are right, a dividend cut is likely to happen.

In most cases, a dividend cut will have a terrible impact on your portfolio. On top of reducing your income stream, your capital will likely take a hit at the same time. Here’s an example of what could wait around the corner if you hold companies that are likely to cut their dividend in the future.

You will notice the weak dividend increases for a few years just before the company stopped its dividend growth policy. The stock price started to go down before the first dividend cut. Therefore, it is important to follow your holdings quarterly. The market saw it coming, they sold the stock leaving you with an important loss at the first dividend cut and the bleeding just kept going.

This unfortunate situation hasn’t happened much in the past 5 years. It is likely to happen a lot more during the next recession. The positive for you is you can “clean” your portfolio before this happens.

How can you fix it?

Going after high yielding stocks is not the problem here. In fact, we have been able to build two complete retirement portfolio models (Canadian and U.S.) averaging between 4% and 5% yield. While I personally tend to discard most stocks offering a yield over 6%, you can still pick a few good companies in that range too. The key is to track their payout ratios carefully (always discussed on our stock cards) and consider their dividend safety score. A good example would be the stock card we have made for BTB REIT (BTB.UN.TO) last year. Please read the dividend growth perspective section here:

Big surprise, BTB cut its dividend in 2020 (shocker, isn’t it?).

Companies without the possibility of increasing their dividend (no matter the actual yield) should be discarded. If management can’t increase your paycheck while interest rates are low, the economy is doing well and we reach full employment capacity, what will happen when clouds start gathering and we hit a recession? I’m telling you when it rains, it pours.

In this case, our dividend safety score would likely become your best friend. All companies scoring a “2” means the dividend hasn’t been increased in the past 18-24 months (or worse). You can then go directly to the stock card and read the dividend growth perspective and go inside their financial statement to look at their payout ratio. If there isn’t a very good reason to expect a dividend increase, then you should seriously consider selling that stock. After all, would you work for an employer who has not given you a pay raise for 4 consecutive years?

This means you may have to sell a few of your “best income earners” at the end of the day. Just consider you are better off with a slightly lower yield coming with dividend increases then a high yield getting eaten alive by inflation!

Holding Too Many Stocks

Once you start investing, it’s like opening a bag of Doritos (at least for me) as you can never get enough! (I like the spicy ones). Many do-it-yourself investors will start with a decent number of holdings in their portfolio. At DSR, we would consider that any number between 20 and 40 holdings is good for a portfolio over $100,000 (more on that later). As years pass, some investors may be tempted to add more positions.

Why are you doing this?

On one hand, you like your existing positions, and you follow the proven “buy and hold” methodology that opens the door to some magical dividend growth and total return numbers. After all, I keep telling you to hold your winners and ride them as long as they fit your investment thesis.

On the other hand, there are new opportunities that arise each year as you develop strong buy lists to potentially replace some of your underperforming stocks. Some retail REITs or energy stocks were ready to get picked in mid 2020 after a major crash in those sectors. It makes sense to add a couple of stocks in those industries as the timing was perfect. The problem is that you keep doing this year after year and you wake-up suddenly with 70 stocks in your portfolio.

How it hurts your portfolio

I see three issues in crossing the 40+ holdings mark and start turning into the “dark side”. The first one is a matter of time. How can you effectively track 75 stocks quarterly and not miss important news? Every quarter, I review each of my holdings’ quarterly reports. I review their financial metrics (starting with the dividend triangle) and make sure the company has increased its dividend in the past 12 months. While this task requires some of my time to cover my 35 different positions, it would become a daunting chore if I had to do the same routine for 75+ stocks. The risk of missing crucial information that would put my portfolio at risk increases exponentially.

The second issue is one of diversification. Have you heard the expression “diworsification”? This is the action of adding more holdings to your portfolio without improving its diversification. Adding a 5th Canadian bank to your portfolio is a classic. I like to pick the best stocks for each industry instead of doubling or tripling my exposure to the same industry with similar picks. Finally, having 75 stocks in my portfolio would start to look a lot like having an ETF. Therefore, why would I spend time and energy managing my portfolio that will be exactly like any dividend growth ETF I could purchase within minutes?

Finally, the third issue I see is one of portfolio weighting. When I research a stock and decide I want to add this position to my portfolio, I want my decision to matter. If I add a new stock to my portfolio that weights 0.5% of my portfolio, how can I benefit from my stock research? Even if that stock doubles in price, it would add 0.50% total returns in my portfolio. This is not moving the needle.

How can you fix it?

You can use a good old minimalist rule: One in, one out! When you want to buy something for your house (furniture for example), something else must go out. First, establish the number of holdings you are comfortable following quarterly. Then once you want to add a new position you should review your portfolio and determine if you are still holding only the “best of breed” for each industry. If that is not the case, simply sell one position and add the new stock. You can use our PRO ratings and dividend safety score to make sure you hold strong companies. You can also review your portfolio sector by sector and identify duplicate positions. Since I have National Bank (NA.TO) and Royal Bank (RY.TO), it makes little sense to add TD Bank (TD.TO) to my holdings. I might as well increase my position on one or both of the current positions.

Focusing On The Word "Valuation"

I decided to add this one as I read a lot of articles about the market being overvalued these days. If you focus too much on valuation, you will likely skip buying amazing companies for the sake of “not buy the stock at the right price”. This is particularly true for growth stocks.

When you look at classic dividend payers with steady growth, it is true that you can use stock valuation methods to determine an entry point. However, I have never understood investors who sit on the sidelines until a stock has reached a specific dollar amount.

Why are you doing this?

The rationale is quite simple as you would be ill-advised to invest in January 2008 when you can buy in March of 2009. There are stocks trading at such high valuations that you wonder how they will ever match the market’s expectations. If you buy a stock at its peak value, you may have to wait for several years before making a penny.

The examples of Microsoft (MSFT) and Walmart (WMT) (graph on the previous page) are shocking. Their PE ratios were so high during the tech bubble that it took more than a decade for investors to get their money back. Would it make sense to buy a well-established company at 60+ times their earnings? You are quite right as it never does.

How it hurts your portfolio

So how is waiting for the “right price” a bad strategy? If you always wait for the right moment to invest, you will likely miss several trains in the process and never get to your destination. Let’s take Alimentation Couche-Tard for example.

If you look at the stock price chart today, you will tell me "Mike, the right time to invest in ATD was 10 years ago. Now it's too late".

And I'll answer: "That's also what investors said 10 years ago"

You probably know the story by now, but some of my top performers (read triple digits returns) are stocks I bought at their 5-year price peak. Companies like Disney (DIS) and Lockheed Martin (LMT), Starbucks (SBUX), Microsoft (MSFT), and Visa (V) were all acquired closer to their “worst entry point”. I feel blessed to have followed my investing strategy and not given too much weight to valuation.

How can you fix it?

The key to take the focus away from valuation is to add more metrics and factors in your investment process.

When you focus on the company’s growth potential, you are less likely going to wait for the “perfect price” which may or may not ever happen. I obviously wish I had bought Visa in 2009, but the second-best time to buy it was when I had money to do so in 2017.

FINAL THOUGHTS

I like to make use of the hiking analogy to describe our investing journey. We know where we start, we know a great deal about the road ahead, and we are certainly aware of our destination. However, we must face various challenges throughout our journey. We sometimes make bad decisions, and we must learn from them. As your hiking buddy, I hope this article found you well and helped you in the management of the potential pitfalls in your portfolio.

As the market continues to evolve with growth (i.e., breaking records pretty much each month!), you still have time to review your portfolio and make sure you are not making any of these invisible missteps. If you think of any other investing mistakes I should add in the future, let me know. As always, you are a great source of inspiration!

Take care,

Mike.

Mike Heroux, Passionate Investor & founder of Dividend Stocks Rock

P.S. On Thursday, November 18th, I’ll be hosting a free webinar about how to position your portfolio for 2022 and I’ll answer all your questions. Register for this new webinar!

Follow me on

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**Please do your own due-diligence before investing in any stocks we discuss in this article**

I may hold shares of companies discussed in this article.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Also read:

18 Dividend Stocks To Consider For The Next Decade

Hybrid Funds To Complement High Yield Portfolios

5 Discounted Dividend Contenders

2 Investing Mistakes We All Make

The Top 10 Dividend Growth Opportunities

My Dividend Growth Investing Buying Process

How To Generate Income From Stocks You Don't Own

7 Best Utilities Sector Dividend Stocks

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<![CDATA[18 Dividend Stocks To Consider For The Next Decade]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/18-dividend-stocks-to-consider-for-the-next-decadehttps://www.thestreet.com/dividendstrategists/dividend-ideas/18-dividend-stocks-to-consider-for-the-next-decadeFri, 05 Nov 2021 14:53:22 GMTToday, I’m going to provide you with my thoughts on some sectors and identify potential winners and losers for the next 10 years.

Today, I’m going to provide you with my thoughts on some sectors and identify potential winners and losers for the next 10 years. This is a result of my own thinking which has evolved from research I’ve done and analyses I have read. This is obviously an exercise of mental gymnastics that could have led to a completely different conclusion if it was done by someone else. This article is not written with the intention of changing your entire portfolio or the way you think but rather to give you some thoughts and ideas to consider.

View the original article to see embedded media.

Basic Materials

General thoughts

While the basic materials sector isn’t my favorite, we can fairly say that it has generated interesting results over the past 21 months. However, the ETF underperformed the overall market now that the hype for many commodities has slowed down.

First, gold had its run during the panic, but quickly faded away (again). I’ve been telling you this since DSR was founded in 2013. Gold is nothing but a bet on fear. Now that this part is gone and we know we will manage to survive the pandemic, gold has no place in your portfolio. Many experts predicted $3,000/ounce for Christmas 2020! Don’t fall into this trap.

Second, someone lit a fire under lumber prices. The demand for lumber (especially in the construction world) went berserk as everybody felt the need to have a “new home” (via renovation or literally, a new home). As is often the case with materials, we just went through a cycle and the demand is now slowing down. I believe low interest rates and the momentum in the construction industry will continue to sustain a strong demand for lumber. It won’t be as crazy as last spring, but you can expect a few more good years for companies in this industry.

Third, metals like copper are on the rise. Here’s a classic story for this sector. Underinvestment reduced the supply of copper, and then when demand from electronics and the construction industries increased the price for the material pops! We have seen the price of iron ore and aluminum rise as well. Overall, metal prices will fluctuate according to China’s demand.

What’s next?

I believe the run for commodities is, once again, cyclical. Therefore, now that everybody talks about it, you are likely too late to enter this cycle. We can see that gold has its price increases end once we realized we could fight this pandemic (as with many other events humans have faced over the past 1,000 years). We can see a slowdown in lumber and my guess is that other commodities will follow. With the concerns around the American Government’s debt level and China’s real estate situation, you can expect more fluctuations for the coming years.

Stocks to consider

If you want to go for basic materials stocks, play the long game and focus on very high-quality companies that have proven they can survive a recession without getting close to bankruptcy.

U.S.: Albemarle (ALB) as a leader in the lithium industry and Air Products & Chemicals (APD) and Linde (LIN) for their exposure to something many companies require to function: industrial gases.

Communication Services

General thoughts

Unless you are a big fan of the telecoms (AT&T and Verizon), there are not many dividend paying stocks in this sector. As you can see on the previous graph, the communication services sector outperforms the S&P 500. Unfortunately, this sector has become a copycat of the tech sector since the best performing companies are all considered to be tech stocks (Facebook, Google, Netflix, etc.). This trend is likely to continue for years. Unfortunately for us, most of those companies don’t intend to pay dividends anytime soon. That makes sense as they have multiple growth opportunities, and they create tons of value for shareholders without writing them checks.

What’s next?

While there is significant potential for growth, there is also lots of speculation. Internet content companies, streaming services, and gaming will be the talk of the town for a while. We can easily see how fast those companies will continue to grow as the consumer is continuously looking for ways to distract themselves. Through smart advertising (thanks to incredibly complex algorithms) and subscription-based models, these industries will likely fly to new highs in the coming years. Unfortunately, internet content companies are hard to analyze over the long term as you never know if you are looking at the next Myspace or the next Facebook (Meta). Go with the established leaders where you have reduced risk.

The other big topic in this sector is obviously the development of the 5G technology. So far, it looks like it’s more costly for telecoms than anything else. This is where you must remain patient. Telecoms have invested massively over the past few years (and more money is coming) to build and maintain vast 5G networks. We are talking billions in debt that will likely generate cash flow for decades to come. As you know, building infrastructure is costly and requires time to pay off. AT&T (T) announced a merger, a spin-off and a dividend cut to come in 2022. I believe management is paying for their mistakes (a series of bad acquisitions followed by mediocre strategic integration). I don’t expect other telecoms (BCE, Telus & Verizon) to slash their dividend anytime soon. Please keep an eye on Verizon’s dividend growth year over year though. If you want fast exposure to 5G, go with the technology stocks making smartphones, the pieces included in them, or the chip makers.

Stocks to consider

Disney (DIS) will likely generate more money than ever once movies and parks are running at full speed. In the meanwhile, they just built another incredible asset in Disney +. Viacom (VIAC) remains a speculative play, but I’m still holding my shares as the company trades at a 7 P/E ratio and at a 1.25 Price to Book ratio.

Consumer Cyclical

General thoughts

This sector includes a wide variety of industries, but they are all linked to one thing: consumer spending. I’m not surprised to see the sector ETF going up 73% vs 41% for the S&P 500 since January 2020. There are many positive factors that should continue to support growth in this sector. First, while the unemployment rate is still higher than pre-pandemic levels, we can see how fast employers have started to hire again. If you look at economic data (US or Canada GDP), you will see that we had a “V” recovery (meaning the economy plunged and rapidly went back on track). Consumers keep buying stuff at an incredible rate. This will likely have an impact on inflation. So far, inflation numbers have been boosted by gasoline and real estate prices. Therefore, most central banks have been quite patient as they want to see if this is just a temporary effect. As we saw in the basic materials section, some commodities are already slowing down.

What’s next?

The automotive industry (Auto parts, Auto manufacturers, Auto & Truck Dealerships) will likely continue to thrive for several years. We are currently going through a chip shortage affecting some cars, but overall, the need (and interest) for more tech in cars will support an upcycle in this industry. We want more technologically advanced vehicles that will “drive themselves” and will be “greener”.

As many consumers have decided to enjoy themselves a bit more as the pandemic slows down, discretionary spending will continue to be popular. While I’m bullish for this sector in general, I’m still concerned about travel and resorts. Restrictions will mitigate some people’s enthusiasm while increasing expenses for operators.

I don’t think the home improvement and construction wave will continue to surge. I don’t expect a crash, but more like a plateau. In other words, the easy money is gone.

I hope sport and outdoor activities will continue to be trendy and you will find many winners among apparel manufacturers and some specialty retailers.

Stocks to consider

U.S.: Gentex (GNTX) has no debt, have a bunch of patents, and dominates their market. Can you ask for more? Home Depot (HD) has proven it can generate solid growth during the pandemic and has become one of the most generous dividend growers on the market. Starbucks (SBUX) has proven once again it can go through a storm and come out stronger. Finally, VF Corp (VFC) is lagging right now, but it now gives you a good opportunity to grab a higher yielding stock in this sector (almost 3%).

View the original article to see embedded media.

Consumer Staples

General thoughts

When I reviewed all the sectors back in February, I noticed that consumer defensive stocks were already lagging the market recovery. It is true that this sector had not been affected as much as other sectors when the first lockdowns happened in 2020. The price for lower fluctuations is often a lack of growth when the market goes back into beast mode.

Food, beverages, and discount stores can work as great protection against market crashes. Hint, if you are worried about the next market crash, this may be a good place to start investing. Yields aren’t the most generous and some companies will show P/E ratios over 25, but keep in mind there is a price to pay for protection. If you are looking to sleep well at night, increase your exposure to this sector.

What’s next?

Going forward, inflationary pressures will likely hurt these businesses. Since most of them operate in mature markets, the growth perspectives aren’t that shiny. A combination of limited organic growth, cost of goods and wage increases will lead this sector towards more acquisitions. In many instances, this will be the only solution to offer an interesting narrative for investors.

If you are looking for growth in this sector you must look at discount stores. They have been quite active since the pandemic, and they now count on more robust balance sheets to expand their business and invest in their ecommerce platforms.

Stocks to consider

I like discount stores such as Costco (COST) and Walmart (WMT). They will continue to offer solid results even if we enter a recession. McCormick (MKC) pays a low yield but shows a robust dividend triangle. I’ll repeat here what I have often said, “I’m not a fan of the tobacco industry”. They pay high yields, but they are killing their customer base.

Energy

General thoughts

Here’s a surprising graph! Did you expect to see the energy sector not showing a full recovery? I heard so much “good stuff” about the oil industry I thought it would be thriving by now. Unfortunately, it’s not that simple. While the price of a barrel of oil went down way too low during the crash of 2020, the situation is not all unicorns and rainbows right now.

Some experts tell you the barrel will quickly reach $100 since many major oil companies slashed their CAPEX budgets last year and that we will face major delays in production from new sites. In other words, less production capacity while demand continues to increase. This is an interesting narrative, but keep in mind I read the exact same stories in 2011. I’m not saying this won’t happen this time, but I’m just telling you to be prudent.

Another fascinating phenomenon recently happened around natural gas. Prices spiked over the past 6 months due to a long list of factors. First, stockpiles in Europe are low due to growing demand (cold winter) and maintenance work at Norwegian facilities. Second, since prices soared in Europe, North American producers jumped on the opportunity to export as much gas as possible. Mix that with a slowdown in drilling projects and a warmer summer in the U.S. and you have an inventory going down faster than expected.

What’s next?

Don’t go crazy just yet. When I look at Natural Gas companies, they aren’t exactly soaring like the natural gas spot price is. Looking at companies such as Cabot Oil & Gas (COG), Enterprise Products Partners (EPD) and Kinder Morgan (KMI), they aren’t exactly killing it in 2021. This tells you the market believes it’s likely a temporary situation. Did anyone tell you that natural gas and oil are cyclical markets? Well, I’m afraid the story will repeat once again.

I think the best way to play the energy sector is to buy robust companies when the market is down, and experts see no good news coming ahead. 6 months later, the situation is completely different and now, we see commodity prices rising like there is no tomorrow. I’m still not convinced by this story. I would rather play it safe on this side. Nonetheless, there are a few good picks in this industry. Especially if you are concerned about rising inflation. The energy sector is historically a good hedge against inflation.

Stocks to consider

U.S.: I’d go with companies that went through the last energy crisis without slashing their dividend. Companies like Enterprise Products Partners (EPD), Magellan Midstream Partners (MMP) and Chevron (CVX) could be on your list.

Financial Services

General thoughts

Financial services in the U.S. underperformed the market while the Big 6 in Canada did slightly better than the TSX 60 since January 2020. While we avoided the worst (a wave of bankruptcies), there are still concerns about the future of banking. Savings and loans are under pressure as interest rates remain low on both sides of the border. We expect central banks to slow down their quantitative easing strategies (e.g., buying bonds to support lower long-term interest rates). Eventually, rate increases will be welcome. Keep in mind the market is likely going to drop a few points whenever the “threat” of rising interest rates grows. I think higher interest rates are good for long-term economic growth. However, this will slowdown the crazy bull market we are having now. In the end, it will be good if we can get a correction in the coming months. Unfortunately, your guess is as good as mine as to when that might happen.

What’s next?

Asset managers will be in a tough situation whenever the market corrects. There are several threats right now (U.S. debt, Chinese economy slowdown, rising inflation and the pandemic). If any of those factors build a narrative strong enough that the market “buys it”, well, we’ll see a lot of investors selling! In that case, assets under management will decrease and so will revenues and earnings. This doesn’t change the long-term trends where wealth management, retirement planning and ETF investing will continue to dominate this industry. Invest accordingly.

Looking at banks and life insurance companies, they would welcome an interest rate increase. This will increase banks margin (interest rate spread) and will allow life insurance companies to invest in better bonds. The bond market has been terrible for anyone trying to build a portfolio with fixed income (like what life insurance companies must do with premiums received to eventually pay claims). DeFi (decentralized Finance) is also a threat for banks, especially for their loans & deposit activities. At this point, we are talking about a marginal system that is available for “those in the know”. Can it become a large movement and do what P2P (peers-to-peers lending) didn’t become 10 years ago? We’ll see in a few years! In the meantime, it’s best to invest with large banks that are well diversified.

Stocks to consider

U.S.: You’ll find classics like Blackrock (BLK) and JP Morgan (JPM) as they are incredibly robust financial firms counting on well-diversified business models. Morgan Stanley (MS) is impressing me with solid execution and a robust dividend triangle. Bank of OZK surprisingly did well throughout the pandemic and keeps increasing its dividend quarterly (you read that correctly, 4 increases a year!).

Final Thought

As you can see, there are opportunities in all sectors. The key is to select the best performing companies for each industry and make sure they fit in your portfolio. I personally don’t invest in all sectors and I still manage a well-diversified portfolio.

I hope you enjoyed this article,

Mike Heroux, Passionate Investor & founder of Dividend Stocks Rock

P.S. Are you concerned by the current state of the market? I recently hosted a free webinar on What To Buy In This Overvalued Market? Know What to Buy, Know When to Sell. Watch the replay here!

Follow me on

Twitter @TheDividendGuy

Youtube

Podcast

**Please do your own due-diligence before investing in any stocks we discuss in this article**

I may hold shares of companies discussed in this article.

View the original article to see embedded media.

Also read:

Hybrid Funds To Complement High Yield Portfolios

5 Discounted Dividend Contenders

2 Investing Mistakes We All Make

The Top 10 Dividend Growth Opportunities

My Dividend Growth Investing Buying Process

How To Generate Income From Stocks You Don't Own

7 Best Utilities Sector Dividend Stocks

3 Industrial Stocks To Build Your Dividend Growth Portfolio

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<![CDATA[Hybrid Funds To Complement High Yield Portfolios]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/hybrid-funds-to-complement-high-yield-portfolioshttps://www.thestreet.com/dividendstrategists/dividend-ideas/hybrid-funds-to-complement-high-yield-portfoliosWed, 03 Nov 2021 13:53:18 GMTComplementing high-yielding portfolios with three funds that capture the essence of dividend investing and generating capital appreciation.

There are all types of income investors. Some are focused solely on generating high yields from their deployed capital, while others build out portfolio’s trying to replicate similar returns that the market produces while squeezing out more than 1.37% in annual yields. When looking for income, many investments such as Alphabet (GOOGL), Amazon (AMZN), Tesla (TSLA), and Facebook (FB) are off the table as they don’t generate dividends. Without exposure to high-growth companies, income investors will have difficulty replicating average market returns in a bull market. I like using the SPDR S&P 500 Trust (SPY) as my barometer for comparing different investments to the market as it’s the most recognized S&P 500 index fund. Over the past five years, SPY has appreciated by 120.21% while generating an annual dividend of $5.66 per share, a forward yield of 1.23%.

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Many income investors have searched for investments to offset the loss of capital appreciation that income investing often inflicts on a portfolio. Not every income investor wants to dedicate their portfolio to high-yielding investments and some are looking for hybrid investments that can offer significant capital appreciation while yielding more than a standard index fund. Recently I wrote an article on three high-yielding funds from Global X that I own and have built a high-yielding portfolio around. Investing in an ETF such as the Global X Nasdaq 100 Covered Call ETF (QYLD) isn’t for everyone as the sacrificing of capital appreciation for the high yield it produces doesn’t work within their investment thesis. For the income investor that is looking to generate above-average market yields and still benefit from capital appreciation, I have a combination of three ETFs that could fit right in your income-producing portfolio. The combination of the Schwab U.S Dividend Equity ETF (SCHD), iShares Core Dividend Growth ETF (DGRO), and the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) provides exposure to 562 holdings, has an average yield of 2.24%, and have an average appreciation of 90.16% in the last five-years.

(Source: Seeking Alpha)

SCHD generally invests in stocks that are included in the Dow Jones U.S. Dividend 100 index. This subset of the Dow Jones U.S. Broad Market Index excludes real estate investment trusts (REITs), master limited partnerships, preferred stocks, and convertibles. SCHD is a market-cap-weighted fund using fundamentals such as cash-flow to debt ratio, ROE, dividend yield, and dividend growth rate to construct its investment portfolio from the Dow Jones U.S. Dividend 100 Index. SCHD is rebalanced quarterly to make sure its positions meet the 4% and 25% criteria, and the overall composition is reviewed on an annual basis.

As a dividend fund, I am fond of SCHD because it still generates a forward yield of 2.88% even after a recent capital appreciation. SCHD has a low expense ratio of 0.06%, has $28.86 billion in assets under management, and has generated a return of 89.33% in the last five years. In SCHD’s top holdings, you will find companies such as Merck & CO (MRK), The Home Depot (HD), Verizon (VZ), Broadcom (AVGO), Cisco Systems (CSCO), PepsiCo (PEP), and Coca-Cola Company (KO). SCHD has paid a dividend for nine consecutive years, has three consecutive years of dividend increases while having a five-year CAGR of 14.55% and a three-year CAGR of 17.40%. SCHD provides investors with respectable capital appreciation, a large dividend yield, and double-digit CAGRs. This hybrid fund can help replace the loss of capital appreciation in a high-yielding portfolio while still throwing off a sizable dividend that continues to grow.

The iShares Core Dividend Growth ETF or DGRO is another great choice for income investors. Unlike SCHD, DGRO has Apple (AAPL) and Microsoft (MSFT) in its top ten holdings. Of the three ETFs I discuss in this article, it has the largest capital appreciation over the past five years generated a 98.39% return. DGRO offers investors a fund predicated around U.S equities that have a history of consistently growing their annual dividends. The criteria for inclusion in DGRO are that the equity must pay a qualified dividend, have at least five years of uninterrupted annual dividend growth, and their earnings payout ratio must be less than 75%. DGRO has an emphasis on technology as 17.19% of the portfolio is allocated to this sector which has benefited its returns throughout the bull market.

DGRO pays an annual dividend of $1.05, which is a forward yield of 1.97%. DGRO has paid consecutive dividends for six years and has also increased its annual dividend consecutively for six years. In the past five years, DGRO has had a CAGR of 19.28%, and in the past three years, the CARG has been 9.14%. The culmination of a dividend that has fluctuated around 2%, significant capital appreciation, and significant dividend growth makes DGRO a strategic addition for a high-yield portfolio that is missing upside potential while still providing yield and dividend growth. DGRO also has a low expense ratio of 0.08%, allowing investors to gain exposure to world-class management at an ultra-low rate.

The third fund in this combination is the ProShares S&P 500 Dividend Aristocrats ETF, NOBL. This is an enticing fund for many individuals as its constructed from only companies that have gained Dividend Aristocrat status. Today there are 65 members in this exclusive club, and to achieve being a member, a company must be included in the S&P 500 index, have 25+ consecutive years of dividend increases, and maintain minimum size and liquidity requirements. Many investors look to the companies within NOBL as individual investments because of their dividend credentials. NOBL has created a fund specifically around these benchmarks, making it a highly sought-after dividend fund. While only the largest S&P 500 companies that have paid a dividend that has increased for 25+ years are part of NOBL, this fund has generated an 82.77% return over the past five years. Part of the appeal is that for a company to pay a growing dividend for 25+ years, it usually means that they have demonstrated a history of weathering market turbulence over time.

NOBL holds all 65 dividend aristocrats in its fund with several dividend kings. 3M (MMM), KO, Johnson & Johnson (JNJ), Proctor & Gamble (PG), Colgate Palmolive (CL), Dover Corp (DOV), Genuine Parts Company (GPC), Emerson Electric (EMR), Stanley Black & Decker (SWK), and Hormel Foods (HRL) have all paid dividends that have consecutively increased for more than 50 years. Within NOBL, you will find more than half the holdings have grown their dividends for more than 40 consecutive years. NOBL has paid a dividend for seven years and has also provided seven consecutive years of dividend increases. NOBL’s five-year CAGR is 11.61%, and over the past three years, its CAGR has been 8.26%. NOBL can fit into any income portfolio as it provides exposure to sixty-five of the highest quality dividends while still providing significant capital appreciation.

Income investing can certainly lack exposure to capital appreciation, but that’s not the case with SCHD, DGRO, and NOBL. These three ETFs are some of the best hybrid funds in the market and can become a pivotal addition to any income portfolio. Many income investors sacrifice capital appreciation for yield, but you can add both future growth potential and respectable yields to the portfolio with these three investments. Regardless if you’re in the market for a fund with only the most battle-tested companies in NOBL, a fund that focuses on capital appreciation and dividend growth in DGRO, or a fund that is a true hybrid providing a high yield of around 3% while still generating an 89.33% return over the past five-years in SCHD, any of these funds can complement a high-yielding portfolio. Sometimes you can have it all, and these funds provide the best of both worlds where dividend investing and capital appreciation collide.

View the original article to see embedded media.

Also read:

5 Discounted Dividend Contenders

2 Investing Mistakes We All Make

The Top 10 Dividend Growth Opportunities

My Dividend Growth Investing Buying Process

How To Generate Income From Stocks You Don't Own

7 Best Utilities Sector Dividend Stocks

3 Industrial Stocks To Build Your Dividend Growth Portfolio

7 Dividend Growth Stocks For October 2021

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<![CDATA[5 Discounted Dividend Contenders]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/5-discounted-dividend-contendershttps://www.thestreet.com/dividendstrategists/dividend-ideas/5-discounted-dividend-contendersMon, 01 Nov 2021 15:54:55 GMTThese high-quality dividend growth stocks have dividend increase streaks of 10-24 years. Each stock is discounted and offers generous and safe dividends and strong total return prospects.

This article presents five high-quality Dividend Contenders that are discounted and offer generous and safe dividends and strong total return prospects.

Dividend Contenders are companies listed on U.S. exchanges that have dividend increase streaks of 10-24 years. There are 315 Dividend Contenders in my watchlist of dividend growth stocks, Dividend Radar, a free resource for DG investors maintained and published every Friday by Portfolio Insight.

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To assess the quality of dividend growth stocks, I use DVK Quality Snapshots. The system assigns quality scores to dividend growth stocks based on indicators of quality from trusted sources. To rank dividend growth stocks, I sort them by quality scores and use tie-breaking metrics when necessary.

In many of my articles, I provide fair value estimates of the stocks I cover. There are many ways to do stock valuation, but I prefer to use a survey approach. I reference fair value estimates and price targets from several sources and calculate a single, representative fair value [FV].

Quality and Valuation Screens

I generally consider five stock-picking criteria when evaluating dividend growth stocks for my DivGro portfolio. The criteria relate to stock quality, dividend safety, growth outlook, income outlook, and stock valuation.

For this article, in addition to considering only Dividend Contenders, I used the following screens:

  1. Stock Quality: High-quality stocks with quality scores of 19-25.
  2. Dividend Safety: Stocks with Very Safe and Safe Dividend Safety Scores, according to Simply Safe Dividends.
  3. Growth Outlook: Stocks likely to deliver annualized total returns of at least 8%, according to the Chowder Rule.
  4. Income Outlook: Stocks with a 5-year yield on cost of 3.5% or higher.
  5. Stock Valuation: Stocks trading below my FV estimate and stocks whose forward dividend yield exceeds their 5-year average dividend yield.

I rate dividend growth stocks according to their quality scores: Exceptional (25), Excellent (23-24), Fine (19-22), Decent (15-18), Poor (10-14), and Inferior (0-9). Only stock rated Exceptional, Excellent, or Fine qualified for this article.

High-quality Discounted Dividend Contenders

Here are the Dividend Contenders that pass my quality and valuation screens:

Note that I’m long all these stocks in my DivGro portfolio.

1. Lockheed Martin Corporation (LMT)

Founded in 1909 and headquartered in Bethesda, Maryland, LMT is a global security and aerospace company engaged in researching, designing, developing, manufacturing, integrating, and sustaining advanced technology systems. LMT operates through four segments, Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space Systems.

2. Bristol-Myers Squibb Company (BMY)

BMY discovers, develops, licenses manufactures, markets, distributes, and sells biopharmaceutical products worldwide. The company's pharmaceutical products include chemically synthesized drugs administered as tablets or capsules. It also uses biologics to produce products administered through injections or by infusion. BMY was founded in 1887 and is headquartered in New York, New York.

3. Amgen Inc. (AMGN)

Based in Thousand Oaks, California, AMGN is a biotechnology company. The company discovers, develops, manufactures, and delivers human therapeutics worldwide. It offers products for the treatment of severe illnesses in oncology/hematology, cardiovascular disease, inflammation, bone health, nephrology, and neuroscience. AMGN was founded in 1980.

4. Snap-on Incorporated (SNA)

SNA manufactures and markets tools, equipment, diagnostics, repair information, and systems solutions. It serves aviation and aerospace, agriculture, construction, government and military, mining, natural resources, power generation, technical education industries, and vehicle dealerships and repair centers. SNA was founded in 1920 and is headquartered in Kenosha, Wisconsin.

5. The Allstate Corporation (ALL)

Founded in 1931 and headquartered in Northbrook, Illinois, ALL is a holding company engaged in property-liability insurance and life insurance in the United States and Canada. The company sells automobiles, homes, and other properties insurance products under the Allstate, Esurance, and Encompass brand names. It also sells life insurance and voluntary accident and health insurance products.

I always encourage readers to do their due diligence research before investing in any of these stocks.

Key Metrics and Fair Value Estimates

Below, I present key metrics of interest to dividend growth investors, along with quality indicators and fair value estimates:

Sources: Dividend Radar • Value Line • Morningstar • FASTGraphs • Simply Safe Dividends

Commentary

Three Dividend Contenders are rated Excellent (quality scores 23-24), and two are rated Fine (quality scores 19-22).

Except for SNA, the stocks are trading well below my FV estimates. Depending on your risk tolerance, you may want to wait for a better entry price for SNA.

At 3.43%, BMY offers the highest forward yield of the five stocks. Along with AMGN and LMT, both also yielding more than 3%, these are great candidates for income investors.

Only LMT does not boast a 5-year dividend growth rate. So investors looking for the best dividend growth candidates should prefer the other Dividend Contenders.

The best combinations of forward dividend yield and 5-year dividend growth rate are ALL and BMY (C#) and AMGN and BMY (5-YOC).

ALL is the best performer over the past five years, based on 5-TTR (price appreciation and dividends). But let’s compare the 10-year trailing total returns of these stocks:

Comparison of the total returns of the five Dividend Contenders versus SPY over the past ten years (source: Portfolio-Insight.com)

Only BMY underperformed SPY, an exchange-traded fund designed to track the 500 companies in the S&P 500 index. LMT was the top-performer, returning 502% or 19.67% annualized.

Let’s look at each of these stocks in turn, courtesy of Portfolio-Insight.com:

Lockheed Martin (LMT)

LMT non-GAAP EPS and dividends paid (TTM), with stock price overlay

LMT has an impressive dividend growth record, but the stock price has not matched the company’s non-GAAP EPS growth, particularly over the past four years or so. I think this creates a potentially lucrative opportunity for patient dividend growth investors.

The stock dropped about 12% last Tuesday following disappointing guidance.

Bristol-Myers Squibb (BMY)

BMY non-GAAP EPS and dividends paid (TTM), with stock price overlay

BMY has a solid track record of dividend payments, with a notable acceleration in dividend growth rate in recent years. The stock price experienced a remarkable run-up from 2012 to 2015, well ahead of non-GAAP EPS growth over that period. Since then, BMY has performed relatively poorly, “waiting” for earnings to “catch up.”

The stock reached a 52-week low despite better-than-expected financials posted for Q3 2021

Amgen (AMGN)

AMGN non-GAAP EPS and dividends paid (TTM), with stock price overlay

AMGN’s dividend increases are impressive and remarkably consistent. The stock price growth has tracked non-GAAP EPS growth rather well, and the recent price drop is creating a great opportunity, in my view.

Snap-on (SNA)

SNA non-GAAP EPS and dividends paid (TTM), with stock price overlay

SNA’s dividend growth rate has accelerated in recent years and attests to a company with confidence in future growth prospects. The stock price went nowhere in 2015-2019 before dropping with concerns about the COVID-19 pandemic on the economy. The recovery has been remarkable, though!

Allstate (ALL)

ALL non-GAAP EPS and dividends paid (TTM), with stock price overlay

ALL’s dividend track record has a blemish in that the company cut its dividend in 2008 and 2009. However, ALL has increased its dividend nicely since then and at an accelerated rate in recent years. The stock price has mostly tracked non-GAAP earnings, and the growth since 2011 has been spectacular.

I find it fascinating that Allstate plans to sell its headquarters in Chicago due to a strong preference to work remotely. I wonder how many companies will follow this trend!

Concluding Remarks

I encourage readers to take a look at these high-quality, discounted Dividend Contenders, as they offer generous and safe dividends and attractive total return prospects.

Thanks for reading!

You can follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

View the original article to see embedded media.

Also read:

2 Investing Mistakes We All Make

The Top 10 Dividend Growth Opportunities

My Dividend Growth Investing Buying Process

How To Generate Income From Stocks You Don't Own

7 Best Utilities Sector Dividend Stocks

3 Industrial Stocks To Build Your Dividend Growth Portfolio

7 Dividend Growth Stocks For October 2021

The Brookfield Family: Earn Dividends & Diversify Your Portfolio

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<![CDATA[2 Investing Mistakes We All Make]]>https://www.thestreet.com/dividendstrategists/investing-strategy/2-investing-mistakes-we-all-makehttps://www.thestreet.com/dividendstrategists/investing-strategy/2-investing-mistakes-we-all-makeWed, 27 Oct 2021 14:18:22 GMTThis article will not be easy to read for most of you. I’m attacking the top investing mistakes I’ve seen across the DSR community over the past 8 years.

My Warning: this article will not be easy to read for most of you. I’m not reciting classic investing mistakes with some generic solutions. I’m attacking the top investing mistakes I’ve seen across the DSR community over the past 8 years. This article covers two of them.

In the following pages, I will not only identify what most investors do wrong, but why they do it and how it hurts their retirement plan. The worst mistakes are often the ones we don’t see. You don’t even realize it’s a mistake since it’s not making you lose money right away. The impact is only visible over a long period of time. It’s like my eternal battle with weight loss.

I’ve been trying to lose weight for several years. It’s a classic resolution most of us make and then forget along the way. The thing is that I don’t forget about it. I even have a plan to make sure I achieve my goal! Over the past 10 years, I’ve made sure to “stay in shape” as I was going through my 30’s. I had been going to the gym regularly until I eventually built one in my basement. I’ve been running 3-4 times a week and even completed a half-marathon. Last year, I ran a total of 836.8km. This year, I’m on target to go above 1,000km! Not bad for a guy who lives in a country where winter lasts 4 months a year!

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Do you know how many pounds I lost? None. For all those years, all I have been able to do is to maintain the same weight. I always had a solid training plan and followed it. Nevertheless, my story is like Groundhog Day. Do you know why?

I make the same “invisible mistake” each year.

Sometimes it is called “the weekend”, and sometimes it is “a good glass of wine by the terrace”. But each year, the mistake I make is not about training intensity, the quality of my plan or my diligence. The mistake I make is about eating too much.

You may feel your portfolio is in good shape. In fact, if it is not, it would be quite surprising considering how great the stock market has been to all investors over the past decade. This is the market covering up for your mistakes. Lucky for you, there is still time to solve these issues and get your portfolio on the right track.

I know very well the following investing missteps as I’ve experienced most of them during my investing journey. We usually say that the ultimate result of a mistake is to allow us to learn something. Let’s explore together those errors and learn how you can fix your portfolio using DSR tools.

#1 - WAITING FOR A PULLBACK

Buy low, sell high”. That is the most basic and sound investing advice we can give to anybody starting their investing journey. Now, what do you do when the stock market keeps going higher and higher? You are not going to buy high (and sell low), are you? This is how you end-up waiting for a pullback. Now that we are currently trading close to an all-time high, it’s even more tempting to wait for the next crash.

Why are you doing this?

History is filled with investing horror stories. During the past 20 years alone, we had the “chance” of running into the tech bubble, the Twin Tower terrorist attack, the 2008 financial crisis, the oil bust in 2015, the 2018 quick bear market, the 2020 pandemic crash and we are about to see how fast this aging bull market might crash. Keeping cash aside for the next crash tells a seducing story: you will buy shares at an incredibly low price, and they will eventually go back up and generate strong returns. After all, why would you buy now, if you can buy later at a cheaper price? Plus, keeping 30% of your money in cash doesn’t make you lose money. It looks like a win-win situation as you get paid (e.g., mediocre interest rate) on your cash and you will eventually get bargains in the stock market.

For an inexplicable reason, most investors keep referring to what happened in 2008-2009 as the norm for a market crash. They expect the next bear market to be fast and furious (pun intended). Therefore, all you need to do is to wait for a few months until the bleeding stops. Then, you put all your money in, and you feel like a king.

The Canadian market almost tripled in value while the U.S. market soared by more than 700%! This is enough for any investor to be “set for life” if they played their cards correctly back in 2009. When you look at this graph, waiting for a pullback makes total sense. Unfortunately, you are wrong.

How it hurts your portfolio

If a year like 2009 happened every 5 or even every 10 years, waiting for a major pullback would be a defendable strategy. After all, any investor who put his money to work in 2009 shows impressive results today. I remember that the famous Canadian Banks were offering yields of between 7% and 9% at their bottom. Just the thought of buying Royal Bank (RY.TO) with a 7+% yield makes me smile… but it is unlikely to happen. In fact, this happened only once in the past 25 years (with a special mention to 2020 where you could have caught RY with a 5% yield). Waiting for such a pullback to get “market deals” is more like waiting to see the Habs win the Stanley Cup (this also happened once in the past 25 years). The problem is that we rarely have the chance to invest after a major stock market correction.

Source: Macrotrends

Since 1970, there have only been 3 interesting pullbacks that would have been worth the wait (1973-74, 2000-01-02 and 2008-09). Imagine if the market correction of 2018 happened similarly to the one in 1990. This would mean that you would be waiting another 9 years before a market crash. Can you afford waiting another decade before investing? Do you think the next market crash will bring prices back to the 90’s? Here’s my blunt answer; it won’t.

But waiting has a more important impact on your portfolio: it inserts doubt into your investing plan. You want an example? How many of you (or your friends) invested all their available money on December 26th, 2018? After both markets showed a strong double-digit decrease from their peak levels. Wasn’t that the pullback you were waiting for? Like most of us, you didn’t know that the end of 2018 would mark the start of another bullish segment. You probably didn’t invest more money in December 2018 because you started thinking about the possibility of another 2008. Even worse, what if the market moved into another bear segment like the one in 2000-2002? The same question could easily apply to the crazy year of 2020. If you tell me that you are waiting for a pull-back now, where were you in March of 2020? As mentioned in our investment bias newsletter, it’s very easy to play Monday morning quarterback as hindsight is truly 20-20!

Waiting for a pullback will do one thing: make you wait to invest. Nobody will come around raising a flag and tell you it’s now the time to pull the trigger. Therefore, why are you waiting?

How can you fix it?

Between 2013 ad 2014, most financial analysts and the media said the market was overvalued. You could find some juicy quotes back then:

“Of course, with stocks at all-time highs, some seem to have nowhere to go but down.”

~Business Insider (2013) (quote from Goldman Sachs)

“At ValuEngine.com we show that 77.8% of all stocks are overvalued, 45.2% by 20% or more. All 16 sectors are overvalued; consumer staples by 17.6%, retail-wholesale by 26.4% and utilities by 9.8%.”

~ Forbes (2013)

“The market has jumped nearly 30%. This means the stock market’s rally has been based solely on people paying more money for the same amount of earnings — this is known as “P/E multiple expansion.”

~ Motley Fool (2013)

In 2017, I officially quit my job as a private banker and invested 100% of the commuted value of my pension plan in dividend growth stocks. Then again, everybody agreed the market was way overvalued back then. In other words, most investors agreed the market was overvalued for 4 consecutive years. What do those people say today?... you know that already.

I know my situation is a unique case study and it doesn’t prove any trends in the market. I still found it very interesting that even after the terrible year we had in 2018, I was better off being fully invested during all that time than if I had waited with 30% to 50% of my portfolio in cash to invest on the day after Christmas. The money my portfolio made between the end of September 2017 and the summer of 2018 combined with the dividend payments I received was more than enough to cover any temporary losses incurred during the second portion of 2018. I ran many calculations and none of them showed that waiting would have been a valid and successful strategy.

What you should do when you think you shouldn’t invest money is to focus on your dividend growth plan instead of the stock value. Back in 2017, I didn’t care where the market was from a valuation standpoint. I used the DSR portfolios and the stock cards to build my portfolio. I selected from among the finest dividend growers at that time. Even if the pullback happened 3 months after I invested my money, I knew my dividend payments would only continue to increase during the correction. Sooner or later, share values would go back up… because this is what has happened repeatedly over history.

Investing with confidence will prevent you from waiting for a pullback. You can look at our portfolio returns. You will see that even during the market correction of 2018, our portfolio minimized its losses by focusing on dividend growing stocks.

The best protection there is against a market crash is a solid portfolio. One way to build such a portfolio is to select companies with robust dividend growth. A quick search across our stock screener will help you identify those hidden gems.

In a few simple clicks, you can set the filters and begin hunting for the best stocks:

  • Minimum Pro Rating 3
  • Minimum Dividend Safety Score 3
  • Minimum 5yr EPS growth of 1%
  • Minimum 5yr revenue growth of growth of 1%
  • Minimum 5yr dividend 1%

By selecting only companies showing positive numbers in the 5yr Rev growth, 5yr EPS growth and 5yr Div. growth columns, you will find companies with a positive dividend triangle.

This methodology covers all “regular companies”, but not REITs and other businesses that use non-conventional metrics instead of EPS. We will address those types of companies later in this letter.

As of July 2021, these simple filters would bring down the dividend universe to 228 candidates for your portfolio. You can slash this list by 64% by selecting only companies with a Pro rating of 4. Even better, you can try different combinations and save your views (e.g. save your favorite filters) if you are a DSR PRO member.

You can then, select the “columns” button and add as many financial metrics as you want. While the stock screener is limited on the number of metrics it can show on your screen, you can export the file as a “csv”, which is an excel spreadsheet.

You will be able to search through several metrics and identify the cream of the crop for each sector and each market. Going through this list by selecting only the strongest dividend growers will increase your protection against any future market crash. Plus, cross-checking our ratings with your portfolio will highlight your holdings that are most susceptible to cutting their dividend in the event of a recession.

Your quarterly DSR PRO report highlights your weakest stocks (DSR PRO or dividend safety score under 3). Then, the Potential Replacements list will identify all the stocks in the same sector with stronger ratings. For example, imagine you have Wells Fargo (WFC) in your portfolio. At DSR, it has a DSR PRO rating of 2 and a dividend safety score of 2. In your PRO report, the replacement list would show stocks like JP Morgan (PRO rating of 4 and dividend safety score of 3) or BlackRock (BLK (Pro rating of 4 and dividend safety score of 4).

Selling your weakest holdings during a bull market is a good way to “buy low and sell high” while improving your overall portfolio for the years to come.

Finally, while the market isn’t going down right now, this doesn’t mean you won’t find companies getting hurt temporarily. The goal of the Mike’s Buy list (updated monthly) is to capture those temporary drops and determine if they are justified or not. You can then invest in momentary pullbacks for specific companies or industries and finally put your money to work for you.

The Mike’s buy list discusses stocks we like but were hurt by the market for one reason or another. This is a good place to find the few “undervalued” stocks of the moment.

#2 - THINKING IT WILL BOUNCE BACK

While some investors wait desperately for a market pullback to invest, some others are fully invested in the wrong companies. Making poor investment decisions happens to all investors from time to time. When you look at my current pension portfolio, you will notice that not all my holdings are showing positive returns. My positions in Lassonde (LAS.A.TO), Magna International (MG.TO) and Andrew Peller (ADW.A.TO) were in the red, about 30 months after I bought those securities. For a while, I’ve patiently waited, but I sold my shares of Lassonde as the company never met my investment thesis. Magna International eventually bounced back and soared while Andrew Peller is still going sideways.

Why are you doing this?

The rationale used here is like the wait for a pullback: you don’t want to buy high and sell low. The first 10-20% loss can be justified by a temporary setback. “The market doesn’t get it”, or “investors will realize this is a good company” are often the rationales employed. You may also try to justify your purchase by any means. It is hard for anybody to admit their mistakes. I can tell you I wasn’t happy to be wrong about FedEx (FDX) in my February Mike’s Buy List, and I had to eventually admit that I picked the wrong company. This hurts our ego, and our brain seems to do everything in its power to protect that ego. For that reason, we often patiently wait for our losers to come back on track and prove us right.

We also comfort ourselves by telling ourselves that selling at a bad time is acting on fear. We don’t want to let our emotions take the wheel and drive our portfolio transactions. While this is a good reflex to have, further analysis must be done before making the final decision on whether to keep a given stock in our portfolio.

How it hurts your portfolio

Many investors will tend to let their losers run as they will consider the money lost. Once you have made a bad investment and you are losing 40% of your capital, what could go wrong from there? How could you possibly lose more money than what you already lost? If that is the case, you are likely to keep your shares and think that one day it will bounce back, and you could recover your money.

In this case, what you are leaving on the table is the opportunity cost of keeping your money invested in a bad place. What if you cut your losses and bought shares of a strong dividend grower instead? There is obviously the possibility of making another mistake, but since you already made one, you should learn from it. For example, look at the graph of some famous companies who cut their dividend not too long ago. Do you really think you will do worse if you sell your loser(s) now and buy something else with better prospects?

Once again, allow me to share a personal story. A few years ago, I held shares of a company who failed me: Black Diamond Group (BDI.TO). The company saw challenging times coming after the oil bust of 2014-2016 and management decided to cut their dividend. Following my investing principles, I took my loss and sold all my shares right away. I wasn’t happy to lose money and I felt a bit dumb for having Black Diamond in my portfolio in the first place. After all, I was wrong with my investment thesis, and I wasn’t fast enough to see the dividend cut coming.

Instead of whining about my bad investment, I sold my shares and moved on. With the proceeds of my transaction, I bought shares of Canadian National Railway (CNR.TO / CNI). The rest is history:

Source: Ycharts

If I had waited for better days with Black Diamond, I would have suffered a second dividend cut and lost even more money. At the same time, my new shares of CNR kept increasing the dividend and my shares have appreciated in value substantially.

How can you fix it?

At DSR, we review about 1,000 companies through our DSR PRO service. Each quarter, we review each earnings report, and we rate those companies for our DSR PRO members. Most companies we rate as “sell” usually end-up lagging the market. Most companies we rate as “buy” usually perform well. By cross-referencing our ratings with your portfolio (using the stock card page or excel file download), you can easily identify which stocks you should evaluate further for future investment. Then, you can look at each company’s individual stock card and read the investment thesis and potential downsides to assess the company’s risk for a new investment.

Let’s take Altria (MO) for example. The stock hasn’t generated much in the past 5 years and offers a yield above 7%. You may wonder if you should keep this stock or not. You look “MO” up in the stock screener and find out that it has a PRO rating of “2” and a dividend safety score of “3”. You can go read the stock card and consider other metrics published on that page (data updated weekly).

You can readily see we are not a fan of MO. But that is our investment thesis. This is our reason why we decided not to invest in this security. This does not mean we are correct and you should sell immediately. However, this is a very good start for you to think about the other side of the coin. By confronting your investment thesis with ours, you will be in a better place to determine whether you should keep your shares. This is how you will gain confidence about the next move to make. Again, consistent use of our DSR tools will allow you to be a better investor.

If you are looking for more incentive to act on this security, I would suggest you keep reading the stock card by analyzing the dividend triangle and read Altria’s potential risk section.

In this case, I think you must cut your losses and find a better performing company.

If you are holding a few companies that you are unsure about and you see they show a “sell rating” on top of a poor dividend safety score, maybe you should listen to your doubts and get rid of them. Each stock card will show you the dividend triangle (revenue, earnings, and dividend growth). A weak dividend triangle will usually lead to poor performance for that security on the markets going forward.

FINAL THOUGHTS

I like to make use of the hiking analogy to describe our investing journey. We know where we start, we know a great deal about the road ahead, and we are certainly aware of our destination. However, we must face various challenges throughout our journey. We sometimes make bad decisions, and we must learn from them. As your hiking buddy, I hope this newsletter found you well and helped you in the management of the potential pitfalls in your portfolio.

As the market continues to evolve with growth (i.e., breaking records pretty much each month!), you still have time to review your portfolio and make sure you are not making any of these invisible missteps. If you think of any other investing mistakes I should add in the future, let me know. As always, you are a great source of inspiration!

Cheers,

Mike.

Mike Heroux, Passionate Investor & founder of Dividend Stocks Rock

P.S. Are you concerned by the current state of the market? I recently hosted a free webinar on What To Buy In This Overvalued Market? Know What to Buy, Know When to Sell. Watch the replay here!

Follow me on

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**Please do your own due-diligence before investing in any stocks we discuss in this article**

I may hold shares of companies discussed in this article.

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<![CDATA[The Top 10 Dividend Growth Opportunities]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/top-10-dividend-growth-opportunitieshttps://www.thestreet.com/dividendstrategists/dividend-ideas/top-10-dividend-growth-opportunitiesMon, 18 Oct 2021 14:29:54 GMTThese high-quality Dividend Radar stocks offer the best opportunities for dividend growth investors. Each stock is trading below my risk-adjusted Buy Below prices and offers generous and safe dividends and strong total return prospects.

This article wraps up my article series on high-quality stocks in each of the GICS sectors. The series of 11 articles presented the 7 highest-ranked dividend growth stocks [DG] in each GICS sector, for a total of 77 stocks. Today, I’m presenting the top opportunities out of these 77 stocks.

In case you missed any of the articles in this series, here they are:

View the original article to see embedded media.

Selection Process

My watchlist of DG stocks is Dividend Radar, a list of stocks trading on U.S. Exchanges with dividend increase streaks of five or more years. Dividend Radar is a free resource for DG investors, maintained and published every Friday by Portfolio Insight.

I generally use five stock selection criteria when selecting DG stocks for my DivGro portfolio. The criteria relate to stock quality, dividend safety, growth outlook, income outlook, and stock valuation. For this article, I used the following screens to select the top ten DG opportunities:

  1. Stock Quality: High-quality stocks with quality scores of 19-25.
  2. Dividend Safety: Stocks with Very Safe and Safe Dividend Safety Scores, according to Simply Safe Dividends.
  3. Growth Outlook: Stocks likely or somewhat likely to deliver annualized total returns of at least 8%, according to the Chowder Rule.
  4. Income Outlook: Stocks with a 5-year yield on cost of 3.5% or higher.
  5. Stock Valuation: Stocks trading no more than 3% above my risk-adjusted Buy Below prices.

I use DVK Quality Snapshots to assess the quality of DG stocks. The system employs five quality indicators and assigns 0-5 points to each quality indicator, for a maximum of 25 points. To rank stocks, I sort them by descending quality scores and break ties by using the following factors, in turn:

  • SSD Dividend Safety Scores
  • S&P Credit Ratings
  • Dividend Yield

I rate DG stocks by quality score as Exceptional (25), Excellent (23-24), Fine (19-22), Decent (15-18), Poor (10-14), and Inferior (0-9). Only stock rated Exceptional, Excellent, or Fine qualified for this article.

I routinely estimate the fair value [FV] to identify candidates trading at favorable valuations. By a favorable valuation, I mean a risk-adjusted Buy Below price that allows a premium of up to 10% for Exceptional stocks and a premium of up to 5% for Excellent stocks but requires FV or below for stocks rated Fine.

The Top 10 Dividend Growth Opportunities

Here are the DG stocks that present the best opportunities for investment at this time:

Note that I’m long the highlighted stocks in my DivGro portfolio.

1. Merck & Co., Inc. (MRK)

Founded in 1891 and headquartered in Kenilworth, New Jersey, MRK is a global health care company that offers health solutions through prescription medicines, vaccines, biologic therapies, and animal health products. MRK markets its products to drug wholesalers and retailers, hospitals, government entities and agencies, physicians, physician distributors, veterinarians, distributors, animal producers, and managed health care providers.

2. Union Pacific Corporation (UNP)

Omaha, Nebraska-based UNP operates the most extensive public railroad in North America, with 32,000 miles of track linking 23 states in the western two-thirds of the United States. UNP hauls coal, industrial products, intermodal containers, agricultural goods, chemicals, and automotive products. UNP owns a quarter of the Mexican railroad Ferromex. The company was founded in 1862.

3. The Home Depot, Inc. (HD)

Founded in 1978 and based in Atlanta, Georgia, HD is a home improvement retailer that sells an assortment of building materials, home improvement products, and lawn and garden products. HD provides installation, home maintenance, and professional service programs to do-it-yourself, do-it-for-me, and professional customers.

4. Lockheed Martin Corporation (LMT)

Founded in 1909 and headquartered in Bethesda, Maryland, LMT is a global security and aerospace company engaged in researching, designing, developing, manufacturing, integrating, and sustaining advanced technology systems. LMT operates through four segments, Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space Systems.

5. Air Products and Chemicals, Inc. (APD)

Founded in 1940 and headquartered in Allentown, Pennsylvania, APD produces atmospheric gases (such as oxygen and nitrogen), process gases (such as hydrogen and helium), specialty gases, and equipment for the production and processing of gases. APD also provides semiconductor materials, refinery hydrogen, natural gas liquefaction, and advanced coatings and adhesives.

6. Illinois Tool Works Inc. (ITW)

Founded in 1912 and headquartered in Glenview, Illinois, ITW is a diversified, global company that manufactures and sells industrial products and equipment worldwide. ITW operates through seven segments: Automotive OEM; Test & Measurement and Electronics; Food Equipment; Polymers & Fluids; Welding; Construction Products; and Specialty Products.

7. Public Service Enterprise Group Incorporated (PEG)

PEG is an energy holding company with operations in the Northeastern and Mid-Atlantic United States. The company transmits and distributes electricity and natural gas. It operates nuclear, coal, gas, oil-fired, and renewable generation facilities with a generation capacity of about 12,000 megawatts. PEG was founded in 1985 and is headquartered in Newark, New Jersey.

8. T. Rowe Price Group, Inc. (TROW)

Founded in 1937, TROW is a financial services holding company that provides global investment management services to individual and institutional investors in the sponsored T. Rowe Price mutual funds and other investment portfolios and through variable annuity life insurance plans. TROW is based in Baltimore, Maryland.

9. WEC Energy Group, Inc. (WEC)

Founded in 1981 and based in Milwaukee, Wisconsin, WEC is an energy company that serves customers in Wisconsin, Illinois, Michigan, and Minnesota. The company's principal utilities are We Energies, Wisconsin Public Service, Peoples Gas, North Shore Gas, Michigan Gas Utilities, and Minnesota Energy Resources. WEC’s subsidiary, We Power, designs, builds, and owns electric generating plants.

10. American Electric Power Company, Inc. (AEP)

AEP is a public utility holding company that engages in generating, transmitting, and distributing electricity to customers in the United States. The company generates electricity using coal and lignite, natural gas, nuclear, hydroelectric, and other energy sources. AEP was founded in 1906 and is headquartered in Columbus, Ohio.

As always, I encourage readers to do their own due diligence research before investing in any of these stocks.

Key Metrics and Fair Value Estimates

Below, I present key metrics of interest to dividend growth investors, along with quality indicators and fair value estimates:

Sources: Dividend Radar • Value Line • Morningstar • FASTGraphs • Simply Safe Dividends

Commentary

Six stocks are rated Excellent (quality scores 23-24), and four are rated Fine (quality scores 19-22).

Only three stocks are not trading below my risk-adjusted Buy Below prices. The exceptions are HD, PEG, and UNP, trading just above my Buy Below prices. Depending on your risk tolerance, those stocks may be suitable candidates, too.

AEP, LMT, MRK, and WEC each have a forward yield that exceeds the corresponding 5-year average dividend yield. This means these stocks have attractive current forward yields relative to past dividend yields.

At 3.54%, AEP offers the highest forward yield of the ten candidates. Along with LMT, MRK, PEG, and WEC, all yielding more than 3%, these are good candidates for income investors.

Based on their past 5-year dividend growth rates, the best dividend growth candidates are APD, HD, ITW, TROW, and UNP. All of these stocks boast double-digit percentage dividend growth rates.

TROW has delivered annualized total returns of around 28% over the past five years! Those are impressive returns! With 23.5%, HD is not far behind.

It is pretty informative to compare the trailing 10-year total returns (price appreciation and dividends) of these stocks:

Comparison of the total returns of five DG candidates that outperformed SPY over the past ten years (source: Portfolio-Insight.com)

Over the 10-year timeframe, HD, ITW, LMT, TROW, and UNP outperformed the SPDR S&P 500 ETF (SPY). SPY is an exchange-traded fund designed to track the 500 companies in the S&P 500 index. HD was the top-performer, returning a spectacular 1,108% or about 28.29% annualized.

On the other hand, AEP, APD, MRK, PEG, and WEC underperformed SPY:

Comparison of the total returns of five DG candidates that underperformed SPY over the past ten years (source: Portfolio-Insight.com)

Best Opportunities in Each GICS Sector

The top 10 DG opportunities represent only six of the eleven GICS sectors:

  • Consumer Discretionary: HD
  • Financials: TROW
  • Health Care: MRK
  • Industrials: ITW, LMT, UNP
  • Materials: APD
  • Utilities: AEP, PEG, WEC

Here are the best opportunities in the other GICS Sectors:

  • Communication Services: Comcast (CMCSA)
  • Consumer Staples: PepsiCo (PEP)
  • Energy: Chevron (CVX)
  • Information Technology: Intel (INTC)
  • Real Estate: Digital Realty Trust (DLR)
Sources: Dividend Radar • Value Line • Morningstar • FASTGraphs • Simply Safe Dividends

Note that none of these stocks passed all of my selection criteria for this article:

  • INTC: C# indicates that the stock is unlikely to deliver annualized total returns of at least 8%
  • PEP: 3.51% premium to my Buy Below price
  • CMCSA: 5-YOC lower than 3.5%
  • CVX: Dividend Safety Score not above 80
  • DLR: Quality score below 19 and 13.95% premium to my Buy Below price

Thanks for reading!

You can follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

View the original article to see embedded media.

Also read:

My Dividend Growth Investing Buying Process

How To Generate Income From Stocks You Don't Own

7 Best Utilities Sector Dividend Stocks

3 Industrial Stocks To Build Your Dividend Growth Portfolio

7 Dividend Growth Stocks For October 2021

The Brookfield Family: Earn Dividends & Diversify Your Portfolio

Supersizing Your Annual Dividends & Generating Additional Income By Selling Covered Calls

7 Best Real Estate Sector Dividend Stocks

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<![CDATA[My Dividend Growth Investing Buying Process]]>https://www.thestreet.com/dividendstrategists/investing-strategy/my-dividend-growth-investing-buying-processhttps://www.thestreet.com/dividendstrategists/investing-strategy/my-dividend-growth-investing-buying-processWed, 13 Oct 2021 14:00:00 GMTWhen I ask my members what their #1 investing struggle is, their answers right off the top are what & when to buy shares and what & when to sell shares!

When I ask my members what their #1 investing struggle is, there are usually two answers right off the top:

#1 What and when to buy shares.

#2 What and when to sell shares!

After a crazy 2020, the market has now reached new highs each month in 2021. The same question keeps coming: Should I invest at the all-time high?

I want to dedicate this newsletter to my buy process. It is not perfect, but it is clear and detailed, and hopefully helps to minimize errors. I think this is the most important part. Without clarity and focus, one can become confused and either err or get stuck in paralysis by analysis.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Have you ever noticed that most of the difficult challenges in life come with very simple solutions?

You want to lose weight? Eat less and focus on healthy foods, and train more.

You want to build a business? Identify a problem and offer a solution.

You want to retire stress-free? Pay yourself first and invest systematically.

You want to travel the world in your 30’s? Buy a RV, quit your job and start your adventure!

Those goals are all considered “difficult” to achieve because they require you to follow a simple methodology for a long, long time! Consistency is the factor most people ignore when going after a specific goal.

You must always eat healthy food and workout 4 days a week.

You must work relentlessly to improve your solution and spread your message.

Paying yourself or going on vacation and fancy yourself with some cool clothes?

All right, my last example was just a crazy tip! Yet it was simple and still difficult to achieve!

Investing is no different. To succeed, you must follow a simple solution. The clearer and more detailed your methodology is, the easier it is to stick to it and avoid mistakes. Here is how I screen the market and make my decisions.

Let us start with the dividend triangle

If you have been following me for a while, you know that I am a big fan of what I call the Dividend Triangle. This simple focus on three metrics will reduce your search time rapidly and help you target companies with robust financials. I start all my searches with a look at companies showing strong revenue growth, earnings growth, and dividend growth over the past 5 years. The detailed explanation is found in our recession-proof workbook I invite you to read and re-read if necessary.

Download the DSR recession-proof workbook.

I use the DSR stock screener to find those great companies and it will take you just a few minutes.

In a few simple clicks, you can set the filters and begin hunting for the best stocks:

  • Minimum Pro Rating 3
  • Minimum Dividend Safety Score 3
  • Minimum 5yr EPS 1%
  • Minimum 5yr revenue 1%
  • Minimum 5yr dividend 1%

By selecting only companies showing positive numbers in the 5yr Rev growth, 5yr EPS growth and 5yr Div. growth columns, you will find those companies with a positive dividend triangle.

This methodology covers all “regular companies”, but not REITs and other businesses that use non-conventional metrics instead of EPS. We will address those types of companies later in this letter.

As of June 2021, these simple filters would bring down the dividend universe to 228 candidates for your portfolio. You can slash this list by 64% by selecting only companies with a Pro rating of 4.

You can then, select the “columns” button and add as many financial metrics as you want. While the stock screener is limited for the number of metrics it can show on your screen, you can export the file as “csv”, which is an excel spreadsheet.

You will be able to search through several metrics and identify the cream of the crop for each sector and each market.

Priority to dividend growth, not yield

Now that you have narrowed the number of stocks to consider, it is time to trim that list further. Throughout the years, most of my best stock picks have been found amongst the strongest dividend growers. When you think about it, it totally makes sense. Those companies must earn increasing cash flows and show several growth vectors to be confident enough to offer a 5%+ dividend increase year after year.

Past dividend growth is a result of several good metrics at the same time. This usually means stronger revenue, consistent earnings growth, increasing cash flow and debt that is under control. We will dig into the other metrics later, but at first glance, a strong dividend grower will likely come with other robust metrics.

While not all my holdings show such strong dividend growth, I always search for the strongest dividend growers when selecting a new stock for my portfolio. In other words, I am trying to maintain my “Chowder score” above 10 for most of my holdings.

Focus on the sector you need

Whenever you isolate certain metrics, you will notice that certain sectors will be generally strong. This is because each sector thrives or faces tailwinds at different times. The timing of your research will determine which sector offers you the best opportunities. Unfortunately, you cannot buy all your stocks from the same sector. The DSR recession-proof workbook will guide you in this regard.

When you run a stock screener at a specific time, you will likely find many companies from the same sector showing a robust dividend triangle. This only tells you this sector is thriving now. While it does not mean you should ignore it, going on a shopping spree and buying 5-6 stocks from that single sector won’t help you build a well-diversified portfolio either.

I would rather buy the best of breed from each sector than buy 4 stocks from the same industry. This will help my diversification and smooth my total returns over time. For example, the fact that I had many tech stocks in my portfolio protected me to some extent from the March 2020 crash. Tech, utilities, and consumer defensive stocks held the fort while my financials, industrials and consumer cyclicals were getting killed. Even more importantly, that diversification helped my portfolio bounce back relatively quickly.

Dividend safety metrics

I will not start the dividend safety metrics with the classic discussion of payout ratios. In fact, I am a big believer that offense is the best defense. If you want to make sure your holdings will continue to increase their dividends, look for companies with strong revenues, earnings, and cash flow generation. While we provide the first two metrics, cash flow from operations and free cash flow can be found in the company’s quarterly and annual statements. I am working on a project to secure those metrics for our stock cards, but it may be a long-term project.

Then, you can move to the dividend growth section of the stock card. It will show you the overall dividend appreciation and the infamous payout and cash payout ratios.

There is some confusion around the cash payout ratio. Here is the formula used by Ycharts:

Common Stock Dividends / (Cash Flow from Operations - Capital Expenditures - Preferred Dividends Paid).

If a company has high Capital Expenditures, they may end-up with a high (or even negative) dividend cash payout ratio. The company, however, will usually finance its CAPEX and use its cash flow to pay its dividends. You obviously want stocks with payout ratios under 80%, but from time to time, more digging will explain high ratios and the dividend will remain safe.

Understand the business model

Once you have finished with the first screeners including the dividend triangle and spot checks on the dividend safety, you are slowly entering into the “art part” of the buying process. We may still rely on some metrics for the downsides and growth potential issues, but for now, your investing process requires you to become an artist.

If you do not understand how a company makes money and how it will grow in the future, just skip to the next one. We make great efforts to define the company’s business model in the name section and you will find more information about it in the investment thesis. The point is to be able to explain what a company does (and how it will grow) to a 12-year-old. If you cannot put it in simple words, chances are you do not fully grasp what is happening. If you cannot, do not feel bad (it happens to me too!) and just focus on the stocks you can fully grasp.

Growth potential and potential downsides

Once we fully understand what a company does (and what it does best!), we can now focus on potential growth and potential downsides. Identifying headwinds and what could go wrong is probably more important than thinking of growth. Being positive about a company at this stage is easy. You have already found companies with strong metrics and the ability to increase their dividends. It is now time to put on your “gloom and doom” hat and look at potential downsides for each company you are considering.

At this point, its half science, and half art. The science part will require that you look at growth trends (dividend triangle) and identify if it is slowing down or not. Then, you can look at debt over the past 5 to 10 years. Identify if the company keeps borrowing more or if it is paying down on its debt. This will require that you dig inside financial statements to understand the full story. You can also use the current ratio on the stock card page.

A current ratio of one means that the book value of current assets is the same as the book value of current liabilities. In general, investors look for a company with a current ratio of 2:1, meaning current assets are twice as large as current liabilities.

A final point about identifying potential downsides is to read bear theses around the web. Look at why some investors dislike the stock you are about to purchase. This may give you other reasons to pursue additional information.

Once you get really depressed about the stock you were so hyped about, it is time to identify growth vectors. It is better to do it in this order, so you don’t paint everything in pink and start looking for unicorns. Too many times, investors forget to identify how the company will thrive in the future. It is not that easy. There is competition, recessions, price of raw materials, inflation, etc. Making a clear list of how the company can grow in any environment is crucial. Do not go for the easy “it’s a great business” thesis. In a capitalist world, companies either grow and thrive or they mature, slowdown and eventually tumble. Do I have to remind you that JC Penney and Sears were growing and solid stocks at one point many years ago?

Valuation

Valuation does play a major role in the buying process. However, this should not be the single factor that determines whether you buy. This is one factor among many. To be honest, I would rather buy an “overvalued stock” with a strong dividend triangle, great growth vectors and lots of potential for the next 10 years than buying an “undervalued stock” that has nothing else but a good yield and a poor valuation.

When I find a company I really like, but the valuation seems to be ridiculous, I will be tempted to put it on a watch list and wait for a while. I usually build this watch list on the side and when I am done with one of my current holdings (the company does not meet my investment thesis anymore), I pull out the watch list and check if valuations have changed. Once again, I will choose any “Microsoft” (overvalued, strong growth) over any “Exxon Mobil” (undervalued, modest growth) of this world.

At DSR, we use mostly two methodologies to determine the stock valuation. The first one is to consider the past 10 years of price-earnings (PE) ratios. This will tell you how the stock is valued by the market over a full economic cycle. You can determine if the company shares enjoyed a PE expansion (price grows faster than earnings) or if the company follows a similar multiple year after year.

When you look at stocks offering a yield of over 3% with a stable business model, the dividend discount model (DDM) can be most useful. Keep in mind the DDM gives you the value of a stock based solely on the company’s ability to pay (and grow) dividends. Therefore, you will find strange valuations when you look at fast-growing companies with low yields (e.g., Visa!).

While the idea of receiving dividends each month is seducing, this is not what makes dividend growth investing magic. It is the combination of capital growth and dividend growth (read total return) that truly generates the magic in your portfolio.

Time to write your investment thesis… and click the buy button!

Let us do a recap of what we have learned so far.

Many investors have difficulty determining which company shares to buy and when to buy them. At DSR, we focus on businesses with a strong dividend triangle. This means we are looking at businesses with strong growth vectors for the future, posting consistent earnings growth and with a sustainable dividend growth policy. The stronger the dividend triangle, the stronger the dividend growth policy should be.

When we find such businesses, we dig into their earnings to understand the business model and write down a complete investment thesis. The investment thesis includes both the reasons why we think this company is great and the potential downsides. It is important to fully understand where the company is going and what could possibly go wrong. Then, and only then do we press the buy button.

How much to invest in a new position… how many holdings in a portfolio anyway?

Personally, I like it when my investments matter. For this reason, I try to keep the number of different holdings between 30 and 40 for any portfolios over 100K. If I were starting all over again with a 20-50K portfolio, I’d go with 20-25 positions. I would then add more as I grow my portfolio to 100K.

I also like to have equally weighted positions at the start. If you do the math, a “full position” would equal between 2.50% (40 positions) and 3.33% (30) of your portfolio.

In an ideal world, I would pull the trigger for the full amount right away. It is not proven by any studies but making 1 buy transaction will kill all dilemma and confusion on what to do next. Once I identify my target, I go get it. End of the story. The whole idea of having a clear buy process is to cut the noise, reduce the doubts and improve your conviction level.

If you prefer going with a “half position” and keep the cash for another transaction, you open the door to doubts and paralysis by analysis. You have already done the work so why bother waiting?

Finally, I like to keep 5%-10% of my holdings for speculative plays. Between 2020 and 2021, I have used this “play money” to buy Brookfield Property Partners (BPY.UN.TO / BPY / BPYU). I later sold it to buy more of CAE (CAE.TO / CAE) in October. Each time I make these trades, I use the profits from my play money to boost my positions in strong dividend growers such as Alimentation Couche-Tard and Telus. I try to keep the same 5-10% of my portfolio value in speculative play. At the time of writing this newsletter, my speculative plays are worth 6% of all my holdings. Keep in mind this is “play money” and it should never replace your main strategy. Always remain cautious!

Summary

Here is my process in a few steps:

#1 Use a stock screener based on the dividend triangle to prepare your buy list.

#2 Highlight stocks with stronger dividend growth over the past 5 years.

#3 Select only the sectors you are interested in and understand.

#4 Select stocks with strong dividend safety.

#5 Dig inside each company to understand their business model.

#6 Do further research to identify potential downsides (risk) and potential upsides (growth).

#7 Look at valuations to determine if it is an immediate buy or if you should add the stock to a “watch list”.

#8 Write down your investment thesis and click on the buy button.

This process is a great start to select companies that meet certain screening standards and then, and only then, do your own personal due diligence.

Cheers,

Mike.

Mike Heroux, Passionate Investor & founder of Dividend Stocks Rock

P.S. Are you concerned by the current state of the market? I recently hosted a free webinar on What To Buy In This Overvalued Market? Know What to Buy, Know When to Sell. Watch the replay here!

Follow me on

Twitter @TheDividendGuy

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**Please do your own due-diligence before investing in any stocks we discuss in this article**

I may hold shares of companies discussed in this article.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Also read:

How To Generate Income From Stocks You Don't Own

7 Best Utilities Sector Dividend Stocks

3 Industrial Stocks To Build Your Dividend Growth Portfolio

7 Dividend Growth Stocks For October 2021

The Brookfield Family: Earn Dividends & Diversify Your Portfolio

Supersizing Your Annual Dividends & Generating Additional Income By Selling Covered Calls

7 Best Real Estate Sector Dividend Stocks

3 Dividend Stocks On My Buy List

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<![CDATA[How To Generate Income From Stocks You Don't Own]]>https://www.thestreet.com/dividendstrategists/investing-strategy/how-to-generate-income-from-stocks-you-dont-ownhttps://www.thestreet.com/dividendstrategists/investing-strategy/how-to-generate-income-from-stocks-you-dont-ownTue, 12 Oct 2021 15:06:15 GMTWhat is the catch or does it sound too good to be true? There isn't a catch, but there is risk involved.

In my last article, I illustrated generating additional income from your stock portfolio by selling covered calls. In this article, I will explain a method that isn't common, but savvy investors use it to generate income while waiting for a stock to reach its desired price. Have you ever said, "if stock XYZ falls under $20, I will buy more?"? How many times have you dollar cost averaged down or up from your original share price? How many times have you waited for a stock to decline before purchasing? If any of these common themes in investing sound familiar, I will introduce a method for generating income from shares while you wait for your desired price by selling puts. I will also reveal a recent put option I just sold on one of my favorite growth stocks.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

First things first, and I need to explain what a put option is. A put option is basically the opposite of call options, which I discussed in my last article. Put options are contracts that give the owner the right to sell a specific amount of an underlying security at a predetermined price within a specific time frame. I am going to focus on selling put options as this is the only method that I utilize puts. Please keep in mind there are different ways to utilize options, especially puts. Before implementing selling puts into your investment strategy, I suggest doing a fair amount of research and making sure that you understand every aspect. I will link a video from the Everything Money channel on YouTube here, where Paul Gabrail does an excellent job of breaking down puts and calls. While reading this article, please keep in mind that I only sell put options on stocks I want to own at a lower price from where they currently trade.

Just like call options, put options have the same main components: the option expiration date, the strike price, and the last/bid/ask price. In the realm of stocks, 1 option contract is the equivalent of 100 shares.

  • Expiration Date
    • This is the date when your option expires. You must either sell or exercise your option by this date.
  • Strike Price
    • The strike price is the price that you agree to either buy or sell an equity for at a later date which is defined by the expiration date
  • Last / Ask / Bid
    • This is what the option contract is currently trading at on a per-share basis
    • If you see .03 you must multiply by 100 as the option contract is for 100 shares, so if you see .03 on the ask it's the equivalent of $3

Here is an example of selling put options. Company XYZ is a company that has been on your watch list, and it's almost in your buy range. XYZ currently trades at $20 per share, and you have said, if XYZ gets to $18 per share, I will purchase 100 shares. You have already determined that your personal purchase price to start a position in XYZ is $18. You can utilize selling a put option to generate income while waiting for XYZ to reach $18 and get paid to wait. You may be thinking to yourself, what is the catch or sounds too good to be true? There isn't a catch, but there is risk involved. I am going to walk you through this strategy with a put option I just sold on SOFI.

(Source: Yahoo Finance)

Above is the put option chain from SOFI Technologies Inc. (SOFI) expiring on November 5th, 2021. I currently have an equity position in SOFI, and I am very bullish on the future prospects of capital appreciation by owning shares of their company. I have outlined my investment thesis on SOFI in this article here. My average price per share is roughly $14.70 per share, and I have decided that if SOFI declines, I will buy more shares once it reaches $14.50 per share. Instead of waiting for this event to occur, I sold a put option to generate income and get paid to wait.

I selected an expiration date of 11/5/21, which was 28 days until expiration, with 20 trading days occurring from when I sold the put option. By selling the put option, I locked myself into an obligation to purchase shares of SOFI on 11/5/21 at $14.50 if SOFI is selling at $14.50 or lower. Here is where the risk comes as nothing is free in life, and there is always risk in investing. On 11/5/21, if SOFI is trading at $13, I am still obligated to purchase shares at $14.50 even though shares are trading for $1.50 lower than the current market price. If shares never decline to $14.50, the put option expires worthless, and I keep the premium I was paid. This strategy works for me because no matter what, I was going to buy shares at $14.50 anyway, so I would rather get paid to wait because once SOFI hit $14.50, I was buying more shares, so if shares continued to decline down to $13 I would have been in the red on those shares regardless.

At the time, shares of SOFI were trading at $16.23. I sold a put option with an 11/5/21 expiration date at a strike price of $14.50 for $0.38. I collected $38 in premium and kept $37.34 after the commission for writing the contract. I said to myself, I wanted to buy more SOFI anyway at $14.50, so why not get paid to wait? I am now obligated to purchase 100 shares on 11/5/21 if SOFI is $14.50 or lower. If SOFI never trades below $14.51, the contract expires, and I keep the premium I collected.

So why did I do this? I wanted to generate income from idle cash in my account. I am bullish on SOFI, and I picked a share price that I would want to own more shares at, and it also happens to be a price that I don't think will occur by 11/5/21. I am hoping that the option expires worthless, but if it doesn't, I am getting more shares of SOFI at a price I was going to pay anyway. If for some reason, shares go down to $13, I wouldn't be mad because I had slated cash to purchase more shares at $14.50 regardless of when that occurred.

I don't like looking too far out, especially around earnings season, because the investment thesis can change in an instant. 11/5/21 is before SOFI earnings on 11/10/21, so I was comfortable with the obligation date. I just generated $37.34 in income from pledging $1,450 for a month. I was paid 2.57% on my cash to guarantee that I would buy a specific number of shares on 11/5/21, and the best thing is, I would purchase the shares anyway. Instead of just waiting for shares to sell off to purchase more, I am now getting paid to wait.

I believe this contract will expire worthless, and I will keep the $37.34 in income, but I will be perfectly happy if it doesn't. I am operating on the premise that in a month, my obligation will end with shares trading above $14.50, and I can rinse and repeat the process. I plan to wait until after earnings and sell a put option on SOFI a month into the future. Selling puts on stocks you want to own can become a lucrative strategy to generate income. To keep the math simple, let's say I can repeat this strategy 10 times throughout the year with the same numbers. I would rinse and repeat utilizing $1,450 in cash to sell a continuous put option on SOFI. Over a year, if the option expires worthless each time I do this, I would have generated $373.40 in income from the options premium. This would be a return of 25.75% by just selling put options on a stock I want to own at a lower price.

There are many different ways to generate income in the market. I personally implement selling covered calls on shares of a company that I own to increase my income, and I sell puts on companies I want to own at a lower price to generate income. It doesn't matter what company it is, from SOFI to Apple (AAPL). If I determined that I wanted to purchase 100 shares of AAPL at $130, I could sell a put option for $1.01 or $101 before the commission and get paid to wait. If AAPL declined from $142.90 to $130 on 11/5/21, I would purchase the 100 shares for $13,000. I would be getting paid $101 to do so, which lowers my price per share to $129 from $130. I am a big fan of making your capital work for you and squeezing every last drop of income out of your dollar. I only sell put options on companies I want to own at a specific price that's lower than the current market price, and I only sell call options on stocks that I currently own. Please do your research before implementing an option strategy. My strategy of selling puts and selling calls fits within my overall investment risk tolerance. I have developed specific rules and criteria to follow.  

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Also read:

7 Best Utilities Sector Dividend Stocks

3 Industrial Stocks To Build Your Dividend Growth Portfolio

7 Dividend Growth Stocks For October 2021

The Brookfield Family: Earn Dividends & Diversify Your Portfolio

Supersizing Your Annual Dividends & Generating Additional Income By Selling Covered Calls

7 Best Real Estate Sector Dividend Stocks

3 Dividend Stocks On My Buy List

4 Dividend Aristocrats With Favorable Valuations

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<![CDATA[7 Best Utilities Sector Dividend Stocks]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/7-best-utilities-sector-dividend-stockshttps://www.thestreet.com/dividendstrategists/dividend-ideas/7-best-utilities-sector-dividend-stocksFri, 08 Oct 2021 12:52:34 GMTThese dividend growth stocks are my top-ranked Utilities sector picks. Several are trading below my risk-adjusted Buy Below prices, so investors have some opportunities here!

Today’s article concludes my article series identifying high-quality stocks in each GICS sector.

My watchlist of dividend growth stocks is Dividend Radar, a list of stocks trading on U.S. Exchanges with dividend increase streaks of five or more years. Dividend Radar is a free resource for dividend growth investors, maintained and published every Friday by Portfolio Insight. The latest edition (dated October 1, 2021) contains 744 stocks, of which 58 fall in the Utilities sector.

I use DVK Quality Snapshots to assess the quality of dividend growth stocks, assigning 0-5 points to each stock based on how they rate on five widely-used quality indicators. The total of these points is a stock’s quality score out of a maximum of 25 points. I rank stocks by sorting them in descending order of quality score. When stocks have the same quality score, I use tie-breaking metrics to rank them.

View the original article to see embedded media.

This article presents the seven top-ranked stocks in the Utilities sector.

In case you missed previous articles in this series, here they are:

The Utilities Sector

The Global Industry Classification Standard® (GICS) assigns companies to a single business classification according to their principal business activity. The first level of the four-tiered, hierarchical industry classification system is the Sector.

The Utilities sector comprises utility companies such as electric, gas, and water utilities. It also includes independent power producers, energy traders, and companies that engage in generating and distributing electricity from renewable sources.

The Utilities sector usually performs better than other GICS sectors when concerns about slowing economic activity surface. People need water, gas, and electricity during all phases of the business cycle! Additionally, lower interest rates that coincide with a weak economy provide cheaper funding for the large capital expenditures required by many companies in this sector.

A detailed breakdown of the Utilities sector (source: Dividend.com)

Sector and Performance Comparison

Let’s compare the sector averages and historical performance of the GICS sectors over different periods to see how the Utilities sector compares:

Sector averages of Dividend Radar stocks and the historical performance of sectors (data sources: Dividend Radar, Fidelity Research, and Google Finance - 6 October

The table is color-coded to show each column’s highest (green) and lowest (red) values. The Utilities sector has the smallest average market cap, the smallest average beta, and the worst 1-year performance of the 11 GICS sectors. Only the Energy and Consumer Staples sectors have higher average yields, while the Utilities sector has the second-highest average dividend streak at 21.4 years.

Sector performance charts give another interesting perspective, especially when comparing those performances to the performance of the S&P 500:

Sector performance charts (created by the author with data from Fidelity Research - 6 October 2021)

The Utilities sector underperformed the S&P 500 in every trailing time frame, except over the past year!

Quality Assessment

I use DVK Quality Snapshots to assess the quality of dividend growth stocks. The system employs five quality indicators and assigns 0-5 points to each quality indicator, for a maximum of 25 points. To rank stocks, I sort them by descending quality scores and break ties by using the following factors, in turn:

  • SSD Dividend Safety Scores
  • S&P Credit Ratings
  • Dividend Yield

I rate stocks by quality score as Exceptional (25), Excellent (23-24), Fine (19-22), Decent (15-18), Poor (10-14), and Inferior (0-9). Investment Grade ratings have quality scores in the range of 15-25, while Speculative Grade ratings have quality scores below 15.

Top-Ranked Utilities Sector Stocks

Here are the seven top-ranked dividend growth stocks in the Utilities sector:

Note that I’m long the four highlighted stocks in my DivGro portfolio.

1. NextEra Energy, Inc. (NEE)

NEE generates, transmits, distributes, and sells electric power to retail and wholesale customers in North America. The company generates electricity through wind, solar, nuclear, and fossil fuel. It also develops, constructs, and operates assets focused on renewable energy generation. NEE was founded in 1984 and is based in Juno Beach, Florida.

2. Public Service Enterprise Group Incorporated (PEG)

PEG is an energy holding company with operations in the Northeastern and Mid-Atlantic United States. The company transmits and distributes electricity and natural gas. It operates nuclear, coal, gas, oil-fired, and renewable generation facilities with a generation capacity of about 12,000 megawatts. PEG was founded in 1985 and is headquartered in Newark, New Jersey.

3. Atmos Energy Corporation (ATO)

Founded in 1906 and headquartered in Dallas, Texas, ATO and its subsidiaries are engaged in the distribution, transmission, and storage of natural gas in the United States. The company delivers natural gas to residential, commercial, public authority, and industrial customers in nine states in the southern USA. ATO also operates intrastate gas pipelines in Texas.

4. Pinnacle West Capital Corporation (PNW)

PNW is a holding company that provides retail and wholesale electric services primarily in the state of Arizona. Its subsidiary, Arizona Public Service Company, is a vertically integrated electric company that generates, transmits, and distributes electricity using coal, nuclear, gas, oil, and solar resources. PNW was founded in 1920 and is headquartered in Phoenix, Arizona.

5. WEC Energy Group, Inc. (WEC)

Founded in 1981 and based in Milwaukee, Wisconsin, WEC is an energy company that serves customers in Wisconsin, Illinois, Michigan, and Minnesota. The company's principal utilities are We Energies, Wisconsin Public Service, Peoples Gas, North Shore Gas, Michigan Gas Utilities, and Minnesota Energy Resources. WEC’s subsidiary, We Power, designs, builds, and owns electric generating plants.

6. American Electric Power Company, Inc. (AEP)

AEP is a public utility holding company that engages in generating, transmitting, and distributing electricity to customers in the United States. The company generates electricity using coal and lignite, natural gas, nuclear, and hydroelectric, and other energy sources. AEP was founded in 1906 and is headquartered in Columbus, Ohio.

7. IDACORP, Inc. (IDA)

Founded in 1915 and headquartered in Boise, Idaho, IDA is a holding company engaged in generating, transmitting, purchasing, and selling electric energy in the United States. The company operates 17 hydroelectric generating plants in southern Idaho and eastern Oregon, and three natural gas-fired plants in southern Idaho.

Please note that these stocks are candidates for further analysis, not recommendations.

Key Metrics and Fair Value Estimates

Below, I present key metrics of interest to dividend growth investors, along with quality indicators and fair value estimates:

  • Yrs: years of consecutive dividend increases
  • Qual: DVK Quality Snapshots quality score
  • Fwd Yield: forward dividend yield for a recent share Price
  • 5-Avg Yield: 5-year average dividend yield
  • 5-DGR: 5-year compound annual growth rate of the dividend
  • 5-YOC: the projected yield on cost after five years of investment
  • C#: Chowder Number, a popular metric for screening dividend growth stocks
  • 5-TTR: 5-year compound trailing total returns
  • VL Safety Rank: Value Line's Safety Rank
  • VL Fin Stren: Value Line's Financial Strength ratings
  • MS Econ Moat: Morningstar's Economic Moat
  • S&P Cred Rating: S&P Global's Credit Ratings
  • SSD Divi Safety: Simply Safe Dividends' Dividend Safety Scores
  • Buy Below: my risk-adjusted buy below price (see below)
  • –Disc +Prem: discount or premium of the recent share Price to my Buy Below price
  • Price: recent share price
Sources: Dividend Radar • Value Line • Morningstar • FASTGraphs • Simply Safe Dividends

My risk-adjusted Buy Below price allows a premium of up to 10% for stocks rated Exceptional and a premium of up to 5% for stocks rated Excellent. In contrast, my Buy Below price equals my fair value estimate for stocks rated Fine, while I require a discount of at least 10% for stocks rated Decent. I'm not interested in stocks rated Poor or Inferior.

I use a survey approach to estimate fair value, referencing fair value estimates and price targets from several online sources, including Morningstar and Finbox. Additionally, I estimate fair value using the 5-year average dividend yield of each stock using data from Portfolio Insight. With several estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my fair value estimate.

Commentary

With quality scores of 21-22, all of the top-ranked Utilities sector stocks are rated Fine.

Four stocks are trading below my risk-adjusted Buy Below prices, and the remaining stocks are trading just above my Buy Below prices. Depending on your risk tolerance, those stocks may be suitable candidates, too.

Except for NEE and PEG, the forward yield of each of the top-ranked Utilities sector stocks exceeds the corresponding 5-year average dividend yield. This means the stocks ranked #3-#7 have attractive current forward yields!

PNW offers an excellent opportunity for income investors. The stock has the highest forward yield (4.48%) and the highest projected yield on cost after five years of investment (5.9%).

Dividend growth investors should consider ATO. The stock yields a respectable 2.77% and a robust 5-year dividend growth rate of 8.3%. Moreover, ATO is discounted by 11% to my Buy Below price.

NEE appears to be the strongest candidate for total return investors, though I would wait for a lower entry point. Below $81 would be good, but closer to $70 would be better. The stock has delivered annual total returns of around 24% over the past 5-years!

Speaking of total returns, let’s compare the trailing 10-year total returns (price appreciation and dividends) of the top-ranked Utilities sector stocks:

Comparison of the total returns of the top-ranked Utilities sector stocks over the past ten years (source: Portfolio-Insight.com)

Over the 10-year timeframe, only NEE outperformed the SPDR S&P 500 ETF (SPY). SPY is an exchange-traded fund designed to track the 500 companies in the S&P 500 index. NEE returned 686% (about 22.89%% annualized) versus SPY’s 353% (16.31% annualized).

NEE’s non-GAAP EPS and dividends paid (TTM), with stock price overlay (source: Portfolio-Insight.com)

Here are similar charts for PNW and ATO:

PNW’s non-GAAP EPS and dividends paid (TTM), with stock price overlay (source: Portfolio-Insight.com)
ATO’s non-GAAP EPS and dividends paid (TTM), with stock price overlay (source: Portfolio-Insight.com)

Concluding Remarks

This article presented the seven top-ranked dividend growth stocks in the Utilities sector.

Based on my rating system that maps from DVK Quality Snapshots to quality scores, all these stocks are rated Fine.

Four stocks are trading below my risk-adjusted Buy Below prices: ATO, PNW, AEP, and IDA. Of these, ATO and PNW present the best opportunities at current prices.

NEE would be great at a lower price, especially for investors seeking total returns.

Thanks for reading!

I’ll write one more article to wrap things up and summarize each GICS sector’s top opportunities.

You can follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

View the original article to see embedded media.

Also read:

3 Industrial Stocks To Build Your Dividend Growth Portfolio

7 Dividend Growth Stocks For October 2021

The Brookfield Family: Earn Dividends & Diversify Your Portfolio

Supersizing Your Annual Dividends & Generating Additional Income By Selling Covered Calls

7 Best Real Estate Sector Dividend Stocks

3 Dividend Stocks On My Buy List

4 Dividend Aristocrats With Favorable Valuations

How To Compare Two Stocks

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<![CDATA[3 Industrial Stocks To Build Your Dividend Growth Portfolio]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/3-industrial-stocks-to-build-your-dividend-growth-portfoliohttps://www.thestreet.com/dividendstrategists/dividend-ideas/3-industrial-stocks-to-build-your-dividend-growth-portfolioThu, 07 Oct 2021 13:35:07 GMTAs many industries operate through unique economic cycles, there are always a few industrials for sale.

I often have the feeling we forget about industrials. There is nothing sexy about them. There is often minimal stimuli to create hype on the stock market. Even worse, this sector is not seen as a source for high dividend yields. As many industries operate through unique economic cycles, there are always a few industrials for sale.

Here are three industrials that should be on your watch list for whenever the next cycle hit their stock price.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

A. O. Smith Corporation (AOS) Business Model

A. O. Smith Corporation is a provider of water heating and water treatment solutions. The Company operates through two segments: North America and Rest of World. The Rest of World segment is primarily comprised of China, Europe, and India. Both segments manufacture and market a range of residential and commercial gas and electric water heaters, boilers, tanks, and water treatment products. Both segments primarily manufacture and market in their respective regions of the world. The North America segment also manufactures expansion tanks, commercial solar water heating systems, swimming pool and spa heaters, related products, and parts. The Company's Lochinvar brand is a residential and commercial boiler brands in the United States. It sells its Aquasana branded products directly to consumers through e-commerce as well as on-line retailers. The Company’s water softener branded products and problem well water solutions include Hague, WaterBoss, Water-Right, WaterCare, and Evolve.

Source: AOS investors presentation

Investment Thesis

Besides being a leader in its market, AOS shows several growth vectors. The company has used its strong North American position to expand through emerging markets where water heaters & boilers have a growing demand. AOS also sells reverse osmosis water treatment products. As technology evolves, reverse osmosis seems like the most efficient and preferred way to treat heavy metals in water. China, India, and other water treatment segments represent 36% of sales and are their fastest growing opportunities. AOS is also seeing additional growth from stimulus checks and renovation incentives in North America. The housing market is healthy, and demand should remain robust with low interest rates. Finally, we like how AOS keeps growing while paying down its long-term debt (from $450M in 2017 to $106M in 2021).

Potential Risks

Some headwinds are coming. The rise of raw material costs (such as steel) is affecting AOS’s profitability. Margins are thin in the “Rest of World” segment, showing roughly a 10% difference from North American margins. This has been a recurrent problem in recent years, and AOS’s earnings might not grow as fast as they have historically. While sales are now back in growth mode in Asia, we saw how tariffs could hurt AOS’ business. Finally, while AOS enjoys strong momentum since the second half of 2020, the stock price may now look pricey. Your investment in AOS could be subject to short-term fluctuations.

Dividend Growth Perspective

AOS has increased its dividend for the past 14 consecutive years (since 2006). It shows great dividend growth but a low yield. The company is clearly focusing on R&D and growing its markets. With a payout ratio under 40%, the money is not going to shareholders currently. Management thinks it can offer stronger share value appreciation than simply paying out a generous yield. After reviewing its growth vectors, I tend to agree. Nonetheless, AOS has increased its dividend by 8% for Q3 2020. You can count on this company even during difficult times.

Apogee (APOG) Business Model

Apogee Enterprises, Inc. is engaged in designing and developing architectural building products and services. The Company operates through four segments: Architectural Framing Systems, Architectural Glass, Architectural Services and Large-Scale Optical Technologies (LSO). The Architectural Framing Systems segment designs, engineers, fabricates and finishes the aluminum frames used in aluminum and glass window, curtainwall, storefront, and entrance systems and comprises of skin and entrances of commercial, institutional, and multi-family residential buildings. The Architectural Glass segment fabricates coated glass used in window and wall systems. The Architectural Services segment provides full-service installation of the walls of glass, windows, and other curtainwall products. The LSO segment manufactures glasses and acrylics products primarily for framing and display applications. Under the Tru Vue brand, products are sold primarily in North America.

Source: APOG website

Investment Thesis

Apogee is one rare small cap with a market capitalization of $1B showing a steady dividend payment history going all the way back to 1985. While the company didn’t always increase its dividend through this period, it has never cut the dividend. Apogee has built a strong reputation and provides its customers with high-quality products. The company operates in a highly fragmented market and shows a solid balance sheet. This could lead to potential M&A in the future. So far, the COVID-19 has affected the APOG margins, but its backlog for 2021 remains robust.

Potential Risks

You won’t be surprised if we tell you the APOG business model is highly cyclical. If no new buildings are being built, APOG won’t sell much framing and glass. When you look at the APOG revenue trends over the past 2 years, you can see the business was slowing down before COVID-19. This strong recession could slowdown APOG in the coming years. In the meantime, additional health measures and delays have affected the company’s margins. The pandemic raises another key question: will there be a growing need for large buildings in the future?

Dividend Growth Perspective

Apogee has successfully increased its dividend yearly since 2011. APOG shows a high-single digit dividend growth rate over that period. Their latest dividend increase (7%) was in line with our expectations. The company has been paying a dividend for a long time, but prudent management has paused its growth policy during the recessions of 2000 and 2008. APOG Dividend Safety Score was recently upgraded from 3 to 4 following their most recent dividend increase.

Cummins (CMI) Business Model

Cummins Inc. designs, manufactures, distributes and services diesel and natural gas, electric and hybrid powertrains and powertrain-related components. The Company's segments include Engine, Distribution, Components, Power Systems and New Power. The Engine segment manufactures and markets a range of diesel and natural gas-powered engines under the Cummins brand name, as well as certain customer brand names, for the heavy and medium-duty truck. The Distribution segment consists of sales and support of a range of products and services, including power generation systems, horsepower engines, and in-shop and field-based repair services. The Components segment supplies products, including aftertreatment systems, turbochargers, filtration products, electronics and fuel systems. The Power Systems segment consists of businesses, including Power generation, Industrial and Generator technologies. New Power segment designs, manufactures, sells and supports hydrogen production solutions.

Source: CMI Q2 presentation

Investment Thesis

Cummins has taken over 100 years to build its solid reputation in the engine manufacturing industry. Today, CMI’s brand is known for its reliability and longevity. The company offers advanced engines and continues to invest in R&D to improve fuel efficiency. CMI benefits from economies of scale where its R&D results can be spread across a wide variety of products. CMI is well positioned to benefit from the transition from classic engines to cleaner technologies such as hybrid motors. The company has successfully gone through the pandemic and has recently (May 2021) raised their guidance for the current fiscal year. It looks like the pandemic may have given a second breath to the transportation industry.

Potential Risks

We have previously discussed how economic cycles can shift rapidly. Cummins will follow the highly cyclical transportation industry. The market greatly overreacted in 2020 leaving CMI close to $100/share before going “all-in” a few months after. You can appreciate how fast the stock goes up and down after each quarterly earnings report. The enthusiasm toward greener trucks compensates for temporarily sluggish sales. With 58% of its sales coming from Canada and the U.S., CMI’s future is closely linked to both countries’ economies. In the hope of getting better results, some of CMI’s customers started their own “in house” engine programs. This could hurt Cummins’ growth potential. Finally, we see a big interest in the electrification of commercial powertrains. CMI’s classic diesel engine will suffer in sales revenues as electric engines gain market share.

Dividend Growth Perspective

CMI has been on a positive streak since 2010. Despite declining revenues and earnings in 2020, management approved a 3% dividend increase. Although management has been more than generous with its payout raises in the past, the current economic situation may call for smaller increases going forward.

FINAL THOUGHT

As you can see, the industrial sector includes many different companies. You could easily add the three companies discussed in this article and still show diversification in your portfolio. Each company would react differently to market events, offering you better protection against market fluctuations.

Cheers,

Mike Heroux, Passionate Investor & founder of Dividend Stocks Rock

P.S. Are you concerned by the current state of the market? I recently hosted a free webinar on What To Buy In This Overvalued Market? Know What to Buy, Know When to Sell. Watch the replay here!

Follow me on

Twitter @TheDividendGuy

Youtube

Podcast

**Please do your own due-diligence before investing in any stocks we discuss in this article**

I may hold shares of companies discussed in this article.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Also read:

7 Dividend Growth Stocks For October 2021

The Brookfield Family: Earn Dividends & Diversify Your Portfolio

Supersizing Your Annual Dividends & Generating Additional Income By Selling Covered Calls

7 Best Real Estate Sector Dividend Stocks

3 Dividend Stocks On My Buy List

4 Dividend Aristocrats With Favorable Valuations

How To Compare Two Stocks

7 Best Materials Sector Dividend Stocks

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<![CDATA[7 Dividend Growth Stocks For October 2021]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-for-october-2021https://www.thestreet.com/dividendstrategists/dividend-ideas/7-dividend-growth-stocks-for-october-2021Fri, 01 Oct 2021 14:28:47 GMTThese Dividend Contenders are trading at discounted valuations and are poised to deliver solid total returns and generous dividend payments over the next five years.

My monthly series 7 Dividend Growth Stocks identifies seven high-quality dividend growth (DG) stocks for further analysis and possible investment. I select DG stocks from Dividend Radar, which tracks stocks trading on U.S. Exchanges with dividend increase streaks of at least five years. Dividend Radar is maintained and published by Portfolio Insight every Friday as a free resource to DG investors.

To highlight different DG stocks every month, I use different screens to narrow down approximately 750 Dividend Radar stocks. This month, I screened for Dividend Contenders trading well below my Buy Below prices with solid growth and income prospects, and safe dividends.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

In case you missed them, here are links to previous articles in this series:

Screening and Ranking

For this month’s article, I used the following screens:

  • Dividend Contenders (dividend increase streaks of 10-24 years).
  • Investment Grade stocks (quality scores 15-25)
  • Dividend Safety Scores > 60 (stocks with dividends deemed Very Safe or Safe)
  • Stocks likely to deliver annualized returns of 8% according to the Chowder Rule
  • Stocks likely to have a yield on cost of at least 4% after five years of investment
  • Price is at least 10% below my risk-adjusted Buy Below price

I use DVK Quality Snapshots to assign quality scores (out of 25) to each DG stock.

Simply Safe Dividends provide Dividend Safety Scores for most DG stocks. Stocks scoring 81-100 are deemed Very Safe, while stocks scoring 61-80 are considered safe.

The Chowder Number (C#) is a growth-oriented metric measuring the likelihood of annualized total returns of at least 8%. I color-code the C# column based on the Chowder Rule, with green indicating candidates likely to deliver annualized total returns of 8%.

The 5-year Yield on Cost (5-YOC) is an income-oriented metric indicating what your YOC would be after buying a stock and holding it for five years, assuming the current 5-year DGR is maintained. I color-code the 5-YOC column green for yields greater than 4%.

I routinely estimate the fair value (FV) of DG stocks. To estimate FV, I collect FV estimates and price targets from several sources, such as Morningstar and Finbox. I also estimate fair value using each stock’s five-year average dividend yield. With several estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my FV estimate.

To adjust for risk, I require a discount of at least 10% for stocks with quality scores of 15-18. For quality scores 19-22, I require FV or below. I allow a premium of up to 5% (quality scores 23-24) for higher-quality stocks and a premium of up to 10% (quality score 25). I present these risk-adjusted prices as Buy Below prices in my tables.

The latest Dividend Radar (dated September 24, 2021) contains 747 stocks.

Exactly seven stocks pass this month’s very stringent screens!

I ranked these candidates by sorting their quality scores (as determined by DVK Quality Snapshots) in descending order and used the following metrics, in turn, to break any ties:

The tables below show the top seven stocks in rank order.

7 Top-Ranked Dividend Growth Stocks for October

Here are top-ranked dividend growth stocks that pass this month’s screens:

I own the five highlighted stocks in my DivGro portfolio.

Below, I provide a table with key metrics of interest to dividend growth investors:

The Fwd Yield column is colored green if Fwd Yield5-Avg Yield.

Key metrics and fair value estimates of October’s Top 7 Dividend Growth Stocks (includes data sourced from Dividend Radar). Utilities are identified with a U in the C# column.

Next, let's look at each stock in turn. All data and charts are courtesy of Portfolio-Insight.com.

Lockheed Martin Corporation (LMT)

Founded in 1909 and headquartered in Bethesda, Maryland, LMT is a global security and aerospace company engaged in researching, designing, developing, manufacturing, integrating, and sustaining advanced technology systems. LMT operates through four segments, Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space Systems.

LMT non-GAAP EPS and dividends paid (TTM), with stock price overlay

Amgen Inc. (AMGN)

Based in Thousand Oaks, California, AMGN is a biotechnology company. The company discovers, develops, manufactures, and delivers human therapeutics worldwide. It offers products for the treatment of severe illnesses in oncology/hematology, cardiovascular disease, inflammation, bone health, nephrology, and neuroscience. AMGN was founded in 1980.

AMGN non-GAAP EPS and dividends paid (TTM), with stock price overlay

Pinnacle West Capital Corporation (PNW)

PNW is a holding company that provides retail and wholesale electric services primarily in the state of Arizona. Its subsidiary, Arizona Public Service Company, is a vertically integrated electric company that generates, transmits, and distributes electricity using coal, nuclear, gas, oil, and solar resources. PNW was founded in 1920 and is headquartered in Phoenix, Arizona.

PNW non-GAAP EPS and dividends paid (TTM), with stock price overlay

The Allstate Corporation (ALL)

Founded in 1931 and headquartered in Northbrook, Illinois, ALL is a holding company engaged in property-liability insurance and life insurance in the United States and Canada. The company sells automobiles, homes, and other properties insurance products under the Allstate, Esurance, and Encompass brand names. It also sells life insurance and voluntary accident and health insurance products.

ALL non-GAAP EPS and dividends paid (TTM), with stock price overlay

The Southern Company (SO)

SO, along with its subsidiaries, operates as a public electric utility company. The company constructs, acquires, owns, and manages generation assets, including renewable energy projects, and sells electricity at market-based rates in the wholesale market. SO was founded in 1945 and is headquartered in Atlanta, Georgia.

SO non-GAAP EPS and dividends paid (TTM), with stock price overlay

Magellan Midstream Partners, L.P. (MMP)

Founded in 2000 and headquartered in Tulsa, Oklahoma, MMP is a publicly traded partnership engaged in the transportation, storage, and distribution of refined petroleum products and crude oil in the United States. MMP owns the longest refined products pipeline in the USA, with access to about half of the nation’s refining capacity.

MMP non-GAAP EPS and dividends paid (TTM), with stock price overlay

Tyson Foods, Inc. (TSN)

TSN is a worldwide food company that operates through four segments: Chicken, Beef, Pork, and Prepared Foods. The company offers its products under various brands, including Tyson, Jimmy Dean, Hillshire Farm, Ball Park, Sara Lee, Chef Pierre, and Golden Island brands. TSN was founded in 1935 and is headquartered in Springdale, Arkansas.

TSN non-GAAP EPS and dividends paid (TTM), with stock price overlay

Concluding Remarks

In this article, I ranked Dividend Contenders with Safe or Very Safe dividends trading at discounted valuations and are poised to deliver solid total returns and generous dividend payments over the next five years.

I’m long five of this month’s seven candidates. My positions are all essentially full-sized positions based on my dynamic and flexible portfolio target weighting strategy, so I’m not planning to add shares at this time.

Of the two stocks I don’t own, SO looks the most interesting. What I don’t like about SO is that its Fwd Yield is not higher than its 5-Avg Yield. That means SO is trading at a bit of a premium relative to historical yields. Additionally, SO is the only stock that does not have a positive twelve-month upside estimate, according to Portfolio Insight.

I’m partial to stocks with higher quality scores, so I would recommend looking at the following stocks first, depending on your investment style and goals:

  • For income investors: PNW, SO
  • For value investors: ALL, PNW
  • For growth-oriented investors: ALL, AMGN, LMT

As always, I advise readers to do their due diligence before investing.

Thanks for reading and take care, everybody!

Please follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Also read:

The Brookfield Family: Earn Dividends & Diversify Your Portfolio

Supersizing Your Annual Dividends & Generating Additional Income By Selling Covered Calls

7 Best Real Estate Sector Dividend Stocks

3 Dividend Stocks On My Buy List

4 Dividend Aristocrats With Favorable Valuations

How To Compare Two Stocks

7 Best Materials Sector Dividend Stocks

3 Dividend Kings With Favorable Valuations

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<![CDATA[The Brookfield Family: Earn Dividends & Diversify Your Portfolio]]>https://www.thestreet.com/dividendstrategists/stock-analysis/brookfield-family-earn-dividends-diversify-your-portfoliohttps://www.thestreet.com/dividendstrategists/stock-analysis/brookfield-family-earn-dividends-diversify-your-portfolioThu, 30 Sep 2021 16:08:26 GMTUnderstanding the differences between Brookfield Infrastructure, Renewable, Properties or Asset Management can be a real puzzle to solve.

If you have been following me for a while, you are familiar with the name “Brookfield”. At DSR, we have several members of the “Brookfield family” in our portfolio models and they have reported robust performances for several years. While all Brookfield companies are based in Canada, they all trade on the NYSE as well (and they pay a dividend in USD!).

However, understanding the differences between Brookfield Infrastructure, Renewable, Properties or Asset Management could be a real puzzle to solve. It has become even worse after the company created new share classes last year for some of its “family members”. Today, we are doing an overview of each company and will clear up which type of shares should be held by which type of investors.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Brookfield Asset Management (BAM)

To keep things simple, we will refer to each company by their “simplest” ticker:

  • BAM: Brookfield Asset Management
  • BIP: Brookfield Infrastructure
  • BEP: Brookfield Renewable
  • BBU: Brookfield Business

BAM’s story traces back to 1899. The company was founded in 1899, as the São Paulo Tramway, Light and Power Company by William Mackenzie and Frederick Stark Pearson. It took the name Brookfield Asset Management in 2005.

Today, BAM is a world-class asset manager with nearly 2,000 employees managing almost $600B in assets. The firm specializes in “alternative assets” management. Alternative assets are those which cannot be categorized as stocks, bonds, or certificates. BAM has become a master in investing in complex projects that require sizeable amounts of money to be “parked” for a very long time. You can consider hydro-electricity plants, wind or solar farms, toll roads, bridges, pipelines, railroads, data centers, healthcare facilities, and large office buildings as examples of these alternative assets.

Such investments require a unique expertise and, while they are operating in various industries, all share many characteristics:

  • Large projects with several layers of complexity.
  • Money must remain invested for decades to generate substantial cash flow.
  • Most projects will perform well over time.
  • They are not generally considered to be liquid assets that can be easily sold.
  • Most projects won’t be greatly affected by economic cycles. They tend to be recession resistant.

From a portfolio management perspective, investing in alternative assets is a great way to diversify your portfolio. Typically, the investment returns on such investments will not be determined by what is happening on the stock market. You can expect they will generate about 5-7% above inflation over long periods of time.

The problem for a retail investor is quite simple: it’s virtually impossible to buy a piece of a bridge or a railroad. This is where BAM comes into play as investing in BAM is like investing in your own “alternative asset fund”.

BAM’s structure is relatively complex as the company has stakes in all “Brookfield family members”:

Source: BEP Dec 31 2020 investor brochure.

If you have spare time each weekend, you can fill that time by following’s BAM’s multiple projects. According to their investors’ presentation (September 2021), the company raised over $43B, deployed (e.g. invested) $45B and realized (sold assets) $30B in the previous twelve months. These transactions include the acquisition of the India Telecom Tower Business for $7.6B, the refinancing of the One Manhattan West building ($1.8B), the privatization of TerraForm Power ($11B in assets were privatized). Speaking of privatization, BAM has recently bought back all outstanding shares of Brookfield Property Partners (BPY).

The company currently has about $78B in liquidity to finance its projects. No doubt, they mean business. BAM will receive large amounts from institutional investors (banks, pension plans, etc.) to invest in alternative assets. They have their own funds and they also created several companies (BPY, BEP, BBU, BAMR). All “Brookfield family members” are at least partially owned by BAM and pay a dividend. Therefore, BAM has created its own dividend fund across their multiple businesses.

In a situation where interest rates are close to zero, BAM is like a kid with $1,000 in a candy store. The company can easily use leverage to finance its capital-intensive projects and support its “children”.

Who Should Consider BAM?

BAM trades on both the Canadian and US markets (BAM.A.TO or BAM) and offers a 1.2% dividend yield. The dividend is paid in USD and has been increased yearly since 2012. Investing in BAM will provide you access to alternative assets, an asset class that is virtually impossible to acquire if you don’t go through packaged investment vehicles (such as ETFs or mutual funds). You will not get much from its yield alone, but the total return (dividends plus capital gains) on such a play is interesting. Among Canadian based asset managers, BAM is somewhere between Berkshire Hathaway and BlackRock. BAM is an excellent fit for growth investors, but also offers robust long term stability.

When analyzing BAM, one should ignore their earnings per share. The company is operating too many different transactions affecting their earnings in a single year. Tracking funds from operations (a non-GAAP measure) will give you a better perspective. This number can be found in each company’s quarterly earnings report (highlighted at the top of their press release).

Partners, Trusts & Corporate Shares?

In 2020, Brookfield decided to create a new type of shares for BIP and BEP. Historically, all companies were trading on both the Canadian and U.S. markets under a Trust (Canadian) or a Limited Partnerships (LP) (U.S.). I’m not going into the tax details here because a) I hate taxes (and you should too) and b) I leave this field of knowledge to accountants and tax experts (and, again, you should too).

Long story short, Trusts and LP’s distributions are taxed differently in a taxable account. For this reason, this type of asset is usually less popular among retail investors, ETFs, and mutual funds due to their tax complexity. To ensure more flexibility and liquidity, Brookfield decided to create corporate shares (C shares). The idea was to increase its appeal to U.S. retail investors because of more favorable tax characteristics.

Therefore, all the family members received their corporation share tickers for both the Canadian and U.S. markets. This created much confusion at first as we now have 3-4 different tickers per company:

All entities are economically equivalent.

Are Corporation Shares Better Then?

Many readers asked me if they should shift their money into the corporation shares. I can’t tell you what to do with your investments (remember, I’m not your broker or your personal advisor). However, I can tell you this: it seems that if you are more interested in total returns and you don’t mind receiving a smaller dividend yield, the corporation shares may be the better option over the long haul. Going forward, demand is likely to remain stronger for the corporation shares because they are easier to trade and deal with the tax implications than the LP or Trust units.

**Please note that there are also tax implications. I strongly suggest you revise this aspect with a tax expert or accountant. There are tax implications for having LPs in retirement accounts for investors**.

Brookfield Infrastructure (BIP, BIPC)

BAM ownership-28%

BPY is one of the largest owners and operators of critical and diverse global infrastructure networks which facilitate the movement and storage of energy, water, freight, passengers, and data. The company’s objective is to generate a long-term return of 12 -15% on equity and provide sustainable distributions for unitholders while targeting annual distribution growth of 5-9%. (BIP investor website).

The company is divided into four different business segments, each of them including multiple activities:

BIP is currently actively investing in its data infrastructure (50% of its CAPEX) and energy business (40%).

BIP Investing Narrative

One major disadvantage most utilities have is their lack of diversification. Many of them excel at a specific type of service (electric transmission, natural gas, etc.) and show a limited geographic footprint. You break both barriers with BIP as the company operates in multiple business segments and manages assets all over the world. We also like their ability to be proactive with massive investment in data infrastructure.

Brookfield Renewable (BEP, BEPC)

BAM ownership-48%

BEP operates one of the world’s largest publicly traded renewable power platforms. Its portfolio consists of approximately 20,000 MW of capacity and over 5,300 generating facilities in North America, South America, Europe, and Asia. Its investment objective is to deliver long-term annualized total returns of 12%–15%, including annual distribution increases of 5–9% from organic cash flow growth and project development. The company is a global leader in hydroelectric power, which comprises approximately 66% of its portfolio. It is also an experienced global owner and operator of wind, solar, distributed generation, and storage facilities. (BEP investor website)

Like BIP’s business model, BEP is also operating across multiple business segments:

Source: Investor brochure

Moving forward, BEP will improve its diversification with major investments in wind and solar energy. The company currently shows a project pipeline of 23,000 megawatts with more than 75% in wind and solar energy. As is the case with other Brookfield members, you are better off tracking its funds from operations than its earnings per share.

BEP Investing Narrative

Like BIP, BEP offers a great diversification for investors when it’s time to select a renewable energy producer. BEP shows about 55% of its activities in North America, opening the door for good geographic diversification. The company is on its way to more than double its energy generation capacity once it completes its development pipeline.

After an impressive stock price surge, the stock appears to be taking a break. While the stock is cooling down, there is nothing to worry about. The rise of interest rates on bonds combined with the incredible ride BEP has had over the past 12 months are responsible for this small correction. You can’t expect stocks to always go up.

Brookfield Business Partners (BBU) (BBU.TO)

BAM ownership-64%

BBU acquires high-quality businesses and applies its global investing and operational expertise to create enhanced value, with a focus on profitability, sustainable margins and sustainable cash flows. (BBU investor website).

This is the smallest of the Brookfield kids and BAM didn’t even bother to create corporate shares for this partnership. It hasn’t been covered much at DSR either due to the lack of dividend growth. BBU goes after public businesses and acquires them to convert them into private companies. One of the most recent cases was Genworth (MIC.TO which now is Sagent) which was acquired not too long ago.

BBU Investing Narrative

BBU hasn’t been on the DSR radar. The stock offers a low yield and has had no dividend growth since it went public. If we want low yield, high growth, we’ll buy BAM directly.

Final Thoughts

After looking across all Brookfield businesses, we think the most interesting investments today are BIP and BEP. The fact that there is a close link between the three of them may create a break to buy the whole package. If anything, major happens to BAM, it will likely have an impact on BIP and BEP. In 2021, BAM created Brookfield Asset Management Reinsurance (BAMR). It just started to pay dividends ($0.13/share, quarterly distribution) for a small yield of 0.9%. Let’s hope it increases its dividend over time and it could be on our radar soon!

Cheers,

Mike Heroux, Passionate Investor & founder of Dividend Stocks Rock

P.S. Are you concerned by the current state of the market? I recently hosted a free webinar on What To Buy In This Overvalued Market? Know What to Buy, Know When to Sell. Watch the replay here!

Follow me on

Twitter @TheDividendGuy

Youtube

Podcast

**Please do your own due-diligence before investing in any stocks we discuss in this article**

I may hold shares of companies discussed in this article.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Also read:

Supersizing Your Annual Dividends & Generating Additional Income By Selling Covered Calls

7 Best Real Estate Sector Dividend Stocks

3 Dividend Stocks On My Buy List

4 Dividend Aristocrats With Favorable Valuations

How To Compare Two Stocks

7 Best Materials Sector Dividend Stocks

3 Dividend Kings With Favorable Valuations

What Is A Good Payout Ratio For Dividend Stocks?

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<![CDATA[Supersizing Your Annual Dividends & Generating Additional Income by Selling Covered Calls]]>https://www.thestreet.com/dividendstrategists/investing-strategy/supersizing-annual-dividends-generating-additional-income-selling-covered-callshttps://www.thestreet.com/dividendstrategists/investing-strategy/supersizing-annual-dividends-generating-additional-income-selling-covered-callsWed, 29 Sep 2021 14:46:19 GMTI describe how I implement a covered call strategy to my overall investment strategy to generate additional income.

Dividend investing allows an individual to generate a consistent income stream from investing in individual equities or funds. Many investors look to dividends to either supplement their current income or offset the loss of income when they retire. I have a comprehensive investment strategy that I designed to meet my future objectives. Dividend investing represents one segment of my investment mix as I am investing in both individual equities and funds to create a continuous income stream. Every dividend I collect gets reinvested so I can utilize the powers of compounding to my advantage.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

What if there was a way to increase the amount of annual yield an investment generates? Regardless if an individual equity or fund is generating a forward yield of 2%, 5%, or 8%, there is a method to supersize the yield your capital is generating. Many investors have heard about options, but few have taken the time to understand them, and even fewer have tried to implement an options strategy to augment their investing. I utilize a covered call strategy to increase the amount of income some of my investments generate and generate income from investments that don't pay dividends to their shareholders through selling covered calls. I will describe what a covered call is and how I implement a covered call strategy to my investment strategy to generate additional income.

What is a Covered Call?

Before implementing this strategy, I suggest doing a fair amount of research and making sure that you understand every aspect of call options. I will link a video from the Everything Money channel on YouTube here, where Paul Gabrail does an excellent job of breaking down puts and calls. I only sell covered calls in full disclosure, and I do not sell naked calls where I don't own the underlying asset.

For people unfamiliar with options and calls, I will describe what a call option is and what a covered call is. A call option is a contract that provides the buyer of the option the right to purchase an asset (stock, bond, commodity, etc.) at a specified price within a specific period. When looking at a call option, there are three main components: the option expiration date, the strike price, and the last/bid/ask price. In the realm of stocks, 1 option contract is the equivalent of 100 shares.

  • Expiration date
    • This is the date when your option expires. You must either sell or exercise your option by this date.
  • Strike Price
    • The strike price is the price that you agree to either buy or sell an equity for at a later date which is defined by the expiration date
  • Last / Ask / Bid
    • This is what the option contract is currently trading at on a per-share basis
    • If you see .03 you must multiply by 100 as the option contract is for 100 shares, so if you see .03 on the ask it's the equivalent of $3

A Covered Call is known as a transaction where an investor owns shares of an equity and sells the equivalent amount of call options on that equity. Hypothetically if an investor owned 100 shares of company XYZ, they could sell 1 call option on XYZ. This is referred to as a covered call because the investor owns the underlying shares which the call represents. In essence, the trade is covered because you're backing the transaction up with your shares.

How I Use Covered Calls and An Example of a Covered Call Option I Am Considering

When it comes to generating additional income from covered calls, I am very selective on the companies that I implement this strategy with. With dividend-paying investments, I want to pick boring companies that I believe will trade sideways throughout the duration of the call option. In my mind, I want the call option to expire worthless so I can keep the premium I was paid, keep my shares, and repeat the process. I never sell call options on shares I don't own because I am not looking to tie up cash as collateral against the call option. Since I own the shares and they are just sitting in my dividend account, I am willing to sell covered calls on them to generate additional income.

AT&T (T) currently pays a dividend of $2.08 per share for a forward dividend yield of 7.65%. This is a tremendous yield, and I can increase the forward yield by selling covered calls. The 52-week range for AT&T is $26.35 - $33.88, and AT&T hasn't traded above $30 since May of 2021. The investor sentiment on T is poor, making this an interesting candidate to utilize a covered call strategy on.

(Source: Yahoo Finance)

I like going a few months out on the covered calls, and I look out of the money. In the example above, any call options that are shaded in blue are considered out of the money as AT&T would have to see share appreciation to reach the strike price. In this example, the expiration date is 1/21/22, which is just under 4 months into the future. I am currently interested in the $30 strike price for $0.19.

Here is how this play works. Hypothetically if I own 100 shares of AT&T, I could sell 1 covered call as each call option is the equivalent of 100 shares. If I was to sell 1 covered call at a strike price of $30 for $0.19 with an expiration date of 1/21/22, that would mean that I just sold the right for someone to purchase my 100 shares from me on or before 1/21/22 for $30 per share. This person would have paid me $0.19 per share or $19 in premium for the right to buy my shares at $30 per share. While this contract is open, any dividend that AT&T issued I would collect as I still own the shares. If AT&T finishes at $30.50 on 1/21/22, I would be obligated to sell them to the person who bought my call option for $30 per share even though they were trading at $30.50. If AT&T is trading at $29 on 1/21/22, the call option will expire worthless, and I would keep my shares and keep the premium of $19 that I was paid for the right to buy my shares.

The best-case scenario for me would be for AT&T's shares to trade under $30 on 1/21/22 and expire worthless, so I can keep both my shares and the premium I was paid. If that were to occur, I could repeat the process again and sell another call option a few months into the future. This turns many people off because it limits your upside potential. If AT&T was trading at $35 on 1/21/22, you would be obligated to sell your shares for $30 and lose out of $5 of upside per share. Therefore I like using boring companies that I own or companies that are trading sideways or down. Even though I believe AT&T is undervalued, it's an interesting candidate for a covered call strategy as its chart is stuck in a downward trend, and investor sentiment is mixed to negative. Keep in mind this could change, and shares of AT&T could go up. You have to be ok with the chance of losing your shares, so if you're going to implement this strategy think about what you would be willing to part with the shares for in case you have to cross that bridge. I have had shares of Energy Transfer (ET) called away from me in the past, but I was willing to part with them at the strike price I locked myself into.

Looking 4 months into the future, the 1/21/22 call option would allow me to complete 3 covered calls over the course of a year if they all worked out in my favor by expiring worthless. Let's keep the numbers the same on each call option. AT&T pays a dividend of $2.08 per share. If you were to sell three covered calls over the course of a year and collected $19 of premium each time you sold a covered call you would collect $57 in premium from the covered calls. Your 100 shares would generate $208 in dividend income prior to compounding. By using this strategy, and if it worked out as I described, your 100 shares of AT&T would generate $265 instead of $208. Assuming that shares of AT&T traded sideways, this would increase your forward yield of 7.67% to 9.77% based on its current share price.

Covered calls aren't for everyone, and I recommend doing a lot of research to gain a solid understanding of how options work. For people who find this strategy interesting but don't want to spend the time learning and implementing a covered call strategy, Global X has created three ETF's that are based around a buy-write covered call strategy to generate yields that exceed 10%. I previously wrote an article for thestreet.com named Generating a 10% yield from combining three ETFs from Global X. If you are interested in letting a fund manager do the work while you sit back and collect large distributions, QYLD, RYLD, and XYLD may be an interesting addition to your income-producing portfolio. If you are interested in squeezing every bit of yield out of your current investments, look into covered calls as they can increase your annual yield substantially for doing minimal work. 

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Also read:

7 Best Real Estate Sector Dividend Stocks

3 Dividend Stocks On My Buy List

4 Dividend Aristocrats With Favorable Valuations

How To Compare Two Stocks

7 Best Materials Sector Dividend Stocks

3 Dividend Kings With Favorable Valuations

What Is A Good Payout Ratio For Dividend Stocks?

3 High Yield ETFs With 3 Unique Approaches

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<![CDATA[7 Best Real Estate Sector Dividend Stocks]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/7-best-real-estate-sector-dividend-stockshttps://www.thestreet.com/dividendstrategists/dividend-ideas/7-best-real-estate-sector-dividend-stocksTue, 28 Sep 2021 14:48:02 GMTThese dividend growth stocks are my top-ranked Real Estate sector picks. Unfortunately, none of the stocks are trading below my risk-adjusted Buy Below prices.

Today’s article is the penultimate one in my article series identifying high-quality stocks in each GICS sector.

I routinely rank stocks in my watchlist of dividend growth stocks, Dividend Radar. When I rank Dividend Radar using DVK Quality Snapshots, some sectors perform better than others. For example, the best Health Care stock is ranked #1, but the best Industrials stock is ranked #14, and the best Energy stock is ranked #150!

View the original article to see embedded media.

That doesn’t mean one shouldn’t invest in the Energy sector! Instead, recognize that diversifying investments across multiple sectors helps to mitigate risk. The reason is some sectors perform better than others in different economic conditions. It is worth revisiting the following chart that ranks the historical performance of each GICS sector and the S&P 500 since 2007. The sectors that outperformed the S&P 500 varies from year to year.

The table ranks the best to worst sector returns since 2007 (source: Novel Investor).

In case you missed previous articles in this series, here they are:

I use DVK Quality Snapshots to assess the quality of dividend growth stocks, assigning 0-5 points to each stock based on how they rate on five widely-used quality indicators. The total of these points is a stock’s quality score out of a maximum of 25 points. To rank stocks, I sort them by descending quality scores and using tie-breaking metrics where necessary.

Dividend Radar maintains a list of stocks trading on U.S. Exchanges with streaks of five years or more of higher annual dividend payouts. Dividend Radar is a free resource for dividend growth investors. It is updated and published every Friday and is available for download here. The latest edition (dated September 24, 2021) contains 747 stocks. Only 50 of these stocks fall in the Real Estate sector.

The Real Estate Sector

The Real Estate sector contains Equity Real Estate Investment Trusts (REITs) and Real Estate Management and Development services. The sector was added to the GICS in August 2016 when S&P Dow Jones Indices and MSCI moved stock-exchange listed Equity REITs and other listed real estate companies from the Financials sector to form a new headline sector under GICS. Mortgage REITs remained in the Financials Sector.

The addition of the Real Estate sector to the GICS recognized the growth in size and importance of equity REITs in the economy. Over the past 25 years, the total equity market capitalization of listed U.S. equity REITs has exploded to more than $1 trillion.

The Real Estate sector represents about 4.0 percent of the equity market capitalization of the S&P 1500. Equity REITs make up about 98 percent of the equity market capitalization of the sector. Real Estate Management & Development companies make up the remainder.

A detailed breakdown of the Real Estate sector (source: Dividend.com)

Sector and Performance Comparison

Let’s compare the sector averages and historical performance of the GICS sectors over different periods to see how the Real Estate sector compares:

Sector averages of Dividend Radar stocks and the historical performance of sectors (data sources: Dividend Radar, Fidelity Research, and Google Finance - 24 September

The table is color-coded to show each column’s highest (green) and lowest (red) values. The Real Estate sector has performed about average over the various time frames in the table. It has the third-smallest average market caps of the 11 GICS sectors and an average beta of 0.91.

Sector performance charts give another interesting perspective, especially when comparing those performances to the performance of the S&P 500:

Sector performance charts (created by the author with data from Fidelity Research - 24 September 2021)

The Real Estate sector underperformed the S&P 500 in every trailing time frame, except over the past year!

Quality Assessment

I use DVK Quality Snapshots to assess the quality of dividend growth stocks. The system employs five quality indicators and assigns 0-5 points to each quality indicator, for a maximum of 25 points. To rank stocks, I sort them by descending quality scores and break ties by using the following factors, in turn:

  • SSD Dividend Safety Scores
  • S&P Credit Ratings
  • Dividend Yield

I rate stocks by quality score as Exceptional (25), Excellent (23-24), Fine (19-22), Decent (15-18), Poor (10-14), and Inferior (0-9). Investment Grade ratings have quality scores in the range of 15-25, while Speculative Grade ratings have quality scores below 15.

Top-Ranked Real Estate Sector Stocks

Here are the seven top-ranked dividend growth stocks in the Real Estate sector:

Note that I’m long the two highlighted stocks in my DivGro portfolio (APD).

1. American Tower Corporation (AMT)

AMT is a real estate investment trust that owns, develops, and operates multi-tenant communications sites across the globe. Customers include wireless service providers, radio and television broadcast companies, wireless data and data providers, government agencies, and municipalities. AMT was founded in 1995 and is headquartered in Boston, Massachusetts.

2. Crown Castle International Corp. (CCI)

CCI owns, operates and leases more than 40,000 cell towers and more than 75,000 route miles of fiber supporting small cells and fiber solutions across every major U.S. market. This nationwide portfolio of communications infrastructure connects cities and communities to essential data, technology and wireless service.

3. Mid-America Apartment Communities, Inc. (MAA)

Founded in 1977 and based in Memphis, Tennessee, MAA is a self-administered and self-managed REIT that focuses on the acquisition, selective development, redevelopment, and management of multifamily homes throughout the Southeastern and Southwestern regions of the United States. MAA has ownership interest in more than 100,000 operating apartment homes in the United States.

4. Digital Realty Trust, Inc. (DLR)

DLR is a real-estate investment trust that owns, acquires, develops, and operates data centers. The company provides data center and colocations solutions to domestic and international tenants, including companies providing financial and information technology services. The company was founded in 2004 and is headquartered in San Francisco.

5. Equinix, Inc. (EQIX)

Founded in 1998, EQIX connects the world's leading businesses to their customers, employees and partners inside the most-interconnected data centers. On this global platform for digital business, companies come together across more than 50 markets on five continents to reach everywhere, interconnect everyone and integrate everything they need to create their digital futures.

6. Realty Income Corporation (O)

Known as The Monthly Dividend Company®, O is an equity REIT that invests in commercial real estate markets in the United States. The company earns income from more than 5,000 properties under long-term lease agreements with commercial tenants. O was founded in 1969 and is headquartered in San Diego, California.

7. AvalonBay Communities, Inc. (AVB)

AVB is a real estate investment trust focusing on the development, redevelopment, acquisition, ownership, and operation of multifamily communities primarily in the United States. The company owns or holds an interest in approximately 260 operating apartment communities in 10 states and the District of Columbia. It operates its apartment communities under three core brands: Avalon, AVA and Eaves by Avalon. AVA was founded in 1978 and is based in Arlington, Virginia.

Please note that these stocks are candidates for further analysis, not recommendations.

Key Metrics and Fair Value Estimates

Below, I present key metrics of interest to dividend growth investors, along with quality indicators and fair value estimates:

  • Yrs: years of consecutive dividend increases
  • Qual: DVK Quality Snapshots quality score
  • Fwd Yield: forward dividend yield for a recent share Price
  • 5-Avg Yield: 5-year average dividend yield
  • 5-DGR: 5-year compound annual growth rate of the dividend
  • 5-YOC: the projected yield on cost after five years of investment
  • C#: Chowder Number, a popular metric for screening dividend growth stocks
  • 5-TTR: 5-year compound trailing total returns
  • VL Safety Rank: Value Line's Safety Rank
  • VL Fin Stren: Value Line's Financial Strength ratings
  • MS Econ Moat: Morningstar's Economic Moat
  • S&P Cred Rating: S&P Global's Credit Ratings
  • SSD Divi Safety: Simply Safe Dividends' Dividend Safety Scores
  • Buy Below: my risk-adjusted buy below price (see below)
  • –Disc +Prem: discount or premium of the recent share Price to my Buy Below price
  • Price: recent share price
Sources: Dividend Radar • Value Line • Morningstar • FASTGraphs • Simply Safe Dividends

My risk-adjusted Buy Below price allows a premium of up to 10% for stocks rated Exceptional, and a premium of up to 5% for stocks rated Excellent. In contrast, my Buy Below price equals my fair value estimate for stocks rated Fine, while I require a discount of at least 10% for stocks rated Decent. I'm not interested in stocks rated Poor or Inferior.

I use a survey approach to estimate fair value, referencing fair value estimates and price targets from several online sources, including Morningstar and Finbox. Additionally, I estimate fair value using the 5-year average dividend yield of each stock using data from Portfolio Insight. With several estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my fair value estimate.

Commentary

All of the top-ranked Real Estate sector stocks are rated Fine, and none of them are trading below my risk-adjusted Buy Below prices. AMT is the only stock whose forward dividend yield exceeds its 5-year average dividend yield, but not by much.

It is interesting to compare the relative performances of these stocks. Consider the following chart showing the total returns (price appreciation and dividends) of the top-ranked Real Estate sector stocks over the trailing 10-year time frame:

Comparison of the total returns of the top-ranked Real Estate sector stocks over the past ten years (source: Portfolio-Insight.com)

Three Real Estate sector stocks (AMT, CCI, and EQIX), outperformed the SPDR S&P 500 ETF (SPY), an ETF designed to track the 500 companies in the S&P 500 index.

EQIX was the best performer with total returns of 1,019% (27.3% annualized) versus SPY’s 358% (16.4% annualized), a 2.85-to-1 margin. The stock has the shortest streak of dividend increases (7 years). I‘m long DLR and O, both of which underperformed the SPY over this time frame.

Given its high 5-year DGR of 19.6%, AMT looks like an interesting candidate. Its 5-year yield on cost of 4.4% and high Chowder Number of 21 indicate strong dividend income and growth prospects. However, it is advisable to wait for a more favorable entry point. My risk-adjusted Buy Below price is $228. For investors willing to accept some risk, my fair value estimate of AMT is $252.

AMT’s diluted AFFO/Share and dividends paid (TTM), with stock price overlay (source: Portfolio-Insight.com)

Concluding Remarks

This article presented the seven top-ranked dividend growth stocks in the Real Estate sector.

Based on my rating system that maps from DVK Quality Snapshots to quality scores, all these stocks are rated Fine. Unfortunately, none of them are trading below my risk-adjusted Buy Below prices.

In my opinion, AMT looks like an interesting candidate, but not at current price levels. Wait for a more favorable entry point. Below $228 per share would be best, though investors willing to accept some risk could pay up to $252 per share.

Thanks for reading!

Next time, we’ll conclude this series by looking at the Utilities sector stocks.

You can follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

View the original article to see embedded media.

Also read:

3 Dividend Stocks On My Buy List

4 Dividend Aristocrats With Favorable Valuations

How To Compare Two Stocks

7 Best Materials Sector Dividend Stocks

3 Dividend Kings With Favorable Valuations

What Is A Good Payout Ratio For Dividend Stocks?

3 High Yield ETFs With 3 Unique Approaches

Tapping Into Higher Dividend Opportunities In The ETF Market

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<![CDATA[3 Dividend Stocks On My Buy List]]>https://www.thestreet.com/dividendstrategists/dividend-ideas/3-dividend-stocks-on-my-buy-listhttps://www.thestreet.com/dividendstrategists/dividend-ideas/3-dividend-stocks-on-my-buy-listThu, 23 Sep 2021 17:11:59 GMTLet's look at three companies on our DSR buy list that could be a good opportunity.

While the market is trading at very high levels for a while, investors have difficulty finding value. I bet you think you are better off waiting on the sideline for the next market crash, right? But what if it happens in 3 years? Did you think of your opportunity cost?

It doesn't mean you must jump in the market blind and buy anything you see. Some stocks have been going sideways recently. They are missing the latest bull trend, which could be a good opportunity for you to grab those shares. Let's look at three companies on our DSR buy list.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Xcel Energy (XEL)

Xcel Energy Inc. is a public utility holding company. The Company's operations include the activity of four utility subsidiaries that serve electric and natural gas customers in eight states. The Company's segments include Regulated Electric and Regulated Natural Gas. The Company's utility subsidiaries include NSP-Minnesota, NSP-Wisconsin, Public Service Company of Colorado (PSCo) and Southwestern Public Service Co. (SPS), which serve customers in portions of Colorado, Michigan, Minnesota, New Mexico, North Dakota, South Dakota, Texas and Wisconsin. Along with WYCO Development LLC (WYCO), a joint venture formed with Colorado Interstate Gas Company, LLC (CIG) to develop and lease natural gas pipelines, storage and compression facilities, and WestGas InterState, Inc. (WGI), an interstate natural gas pipeline company, these companies comprise the regulated utility operations.

Source: XCEL Investors presentation September 2021

Investment Thesis

Utilities and stability could be used as synonyms. Xcel expects to invest $24B in new infrastructure between 2021 and 2025. This falls within its plan to become 100% carbon-free by 2050. This massive investment plan should generate earnings growth of 6% per year which will also allow the dividend to grow as well. Xcel has taken an early lead in renewable energy, and it should pay off going forward. The utility enjoys a favorable geographic position as Minnesota and Colorado are among the best wind resources in the U.S. There is $18B of the $24B CAPEX that will be dedicated to these states. Xcel should also benefit from strong political and regulatory support for gas distribution system hardening projects. The chances of getting rate increase approvals for such.

Potential Risks

XEL is moving forward with a massive investment plan of $24B. Utilities usually expect regulators to approve rate increases commensurate with the money they invest. In a low-interest rate environment, debt is cheap, and regulators consider the lower cost of capital in their rate increase assessments. Regulators also exist to protect consumers. This could lead to less profitable projects going forward. Regulators may also consider the current recession before increasing rates to customers that already are hard pressed to meet their bills. We had a good example of recent decisions from Colorado’s regulators to cut XEL’s returns on their latest projects.

Dividend Growth Perspective

Xcel raised its dividend by 6.58% in 2019 and kept the same trend in 2020 (+6.17%) and 2021 (+6.5%). This is what we call stable dividend growth. In a recent presentation (Jan 2021), management plans to keep its 5-7% dividend growth target going forward with a 60-70% payout ratio. The dividend growth policy is fueled by an impressive investment plan of $24B over the coming years. Renewable energy is expected to contribute the highest growth for Xcel moving forward, but there are still many sources of stable income coming from their existing customers. Xcel should continue its streak of dividend increases for many years to come.

ViacomCBS (VIAC)

ViacomCBS Inc. is a global media and entertainment company that creates content for audiences worldwide. The Company's business segments include TV Entertainment, Cable Networks, and Filmed Entertainment. The TV Entertainment segment operates the CBS Television Network, its domestic broadcast network; CBS Studios and CBS Media Ventures, its television production and syndication operations; its CBS branded streaming services, including CBS All Access/Paramount+; CBS Sports Network, and its cable network focused on college athletics and other sports. The Cable Networks segment operates a portfolio of streaming services, including Pluto TV, a free advertising-supported streaming television (FAST) service and Showtime Networks’ subscription streaming service (SHOWTIME OTT). The Filmed Entertainment segment operates Paramount Pictures, Paramount Players, Paramount Animation and Paramount Television Studios, and also includes Miramax, a consolidated joint venture.

Source: VIAC Q1 2021 presentation

Investment Thesis

The merger between both companies was a good idea. Content creation limits new players’ ability to enter this arena. VIAC now enjoys a strong broadcast network reaching over 100M American households. The company offers popular and unique channels and sports broadcasting rights to advertisers. They have licensed their content to other streamers like Netflix in the past, but this may change in the future as VIAC is working on its own streaming service. The recent raise of capital sparked the sell-off, but we think it was a smart way to cash in on a high valuation to support spending on its new streaming business. The media company is known to create blockbuster TV series, so let’s hope that continues going forward. VIAC remains a speculative play.

Potential Risks

Part of ViacomCBS’s business is linked to the “old” cable industry. As many customers cut the cord, VIAC must deal with a slowly dying cash flow. The company may be entering the streaming service party a little late. It was licensing its content before, but now it seems like they want to become another player in this growing industry. VIAC’s success will revolve around its ability to create high-quality programs. Most recently, the company has been on the news (end of March 2021). The stock price started to decline after the announcement of an equity raise in Class B common shares and mandatory convertible preferred shares. The arrival of 20 million new shares was the first spark to a significant sell-off. Then, the stock continued to drop as Archegos Capital (a hedge fund) was forced to sell more than $20B in stocks on Friday due to a margin call. VIAC lost 50% of its value in a single week. It’s an interesting speculative play but proceed with caution.

Dividend Growth Perspective

VIAC had to wait more than a year to increase its dividend as it was working on the merger. The company rewarded shareholders with a massive increase (from $0.18 to $0.24) to compensate for that delay. As the company continues to integrate both companies together, we doubt there will be another dividend increase in 2021.

Gentex (GNTX)

Gentex Corporation designs and manufactures automatic-dimming rearview mirrors and electronics for the automotive industry, dimmable aircraft windows for the aviation industry, and commercial smoke alarms and signaling devices for the fire protection industry. The Company's business segment involves designing, developing, manufacturing and marketing interior and exterior automatic-dimming automotive rearview mirrors that utilize electrochromic technology to dim in proportion to the amount of headlight glare from trailing vehicle headlamps. Within this business segment, the Company also designs, develops and manufactures various electronics that are features to the interior and exterior automotive rearview mirrors, as well as interior visors, overhead consoles, and other locations in the vehicle. The Company ships its products to all of the automotive producing regions across the world, which it supports with various sales, engineering and distribution locations across the world.

Source: GNTX July 2021 Investors update

Investment Thesis

Gentex is the industry leader and its products are on the way to becoming industry standards. GNTX also shows a stellar balance sheet with virtually no debt and tons of patents. It can weather any economic storm and could become an interesting candidate for a merger. GNTX also benefits from being the first to offer this high-quality product. This leads to higher margins for early adoption and puts Gentex #1 in automakers’ mind for future orders. We appreciate the company’s effort to diversify its business model and not remain a “one-trick-pony”. The company is expanding its product offerings to toll modules, airplane windows, and in the long-term healthcare applications such as lighting for operating rooms and iris identification and smoking detection for the interior of autonomous vehicle fleets. Gentex is set to continue its growth for at least a decade. Finally, Gentex will benefit from the “EV wave” as those vehicles includes lots of new technologies (such as auto-diming mirrors!). You can learn more about how to get exposure to the Electric Vehicle trend in this podcast.

Potential Risks

Magna Mirrors is GNTX’s largest competitor and has more resources. If Magna decides to compete with a similar technology, it could win. Also, GNTX doesn’t operate in a vast economic moat and has limited pricing negotiation power with automakers. The automotive parts industry is very cyclical and new technology could hurt (cameras could replace mirrors). Sales could get hurt during a recession as its products are still considered a luxury. However, its strong R&D budget enables it to develop new technologies. Gentex must deal with the semiconductors shortage which will affect its revenue in 2021. We expect the situation to improve in 2022.

Dividend Growth Perspective

GNTX has increased its payouts each year since 2011 but has not increased it in 2021 yet (July 2021). We were disappointed by the 2019 increase (+5%) and 2020 (+4.5%), but we can expect steady growth in the next few years. Current payout and cash payout ratios allow room for future increases. Gentex is sitting on a pile of cash (over $456M as of March 31st, 2021) and has virtually no debt. Expect mid-single-digit dividend growth numbers for the next decade. Management will also continue its share buyback program. Don’t mind the company’s DDM valuation; low yielding stocks must show double-digit growth to show any value using this model.

Final Thoughts

As you can see, if you dig a little deeper, you can find companies hitting bump roads. While those companies should do well over the long run, they are being penalized for short-term events. This is how the market reacts to bad news. Now it's up to you to analyze and seize those opportunities!

Cheers,

Mike Heroux, Passionate Investor & founder of Dividend Stocks Rock

P.S. Are you concerned by the current state of the market? I recently hosted a free webinar on What To Buy In This Overvalued Market? Know What to Buy, Know When to Sell. Watch the replay here!

Follow me on

Twitter @TheDividendGuy

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**Please do your own due-diligence before investing in any stocks we discuss in this article**

I may hold shares of companies discussed in this article.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Also read:

4 Dividend Aristocrats With Favorable Valuations

How To Compare Two Stocks

7 Best Materials Sector Dividend Stocks

3 Dividend Kings With Favorable Valuations

What Is A Good Payout Ratio For Dividend Stocks?

3 High Yield ETFs With 3 Unique Approaches

Tapping Into Higher Dividend Opportunities In The ETF Market

7 Best Information Technology Sector Dividend Stocks

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